Itqan Capital starts GASCO coverage with ‘Neutral’, TP at SAR 30.10

Itqan Capital initiated coverage of National Gas and Industrialization Co. (GASCO), assigning the stock a ‘Neutral’ rating with a target price of SAR 30.10 per share.

The recommendation was based on the company’s weak top-line growth outlook and rising fixed costs, the brokerage firm said in a report, adding that the expected high dividend payout and defensive nature of the sector should support GASCO’s value amid current economic uncertainty.

Itqan attributed GASCO’s weak growth outlook to slower population growth, stringent regulatory environment, and rising fixed costs. Additionally, the company is also facing significant risk as competition in the segment could emerge, following the expiry of its monopolistic franchise without renewal since March 2018.

If new market players emerge, it will impose material pressure on GASCO’s profitability and cash generation, the report said.

Itqan expects GASCO’s attractive dividend payout and top-line stability to position it as a defensive stock amid current economic uncertainty and a possible market correction.

The brokerage firm indicates GASCO to achieve a net profit of SAR 102 million in 2020 and SAR 108 million in 2021, while dividend to hit SAR 1.2 per share in 2020 and SAR 1.3 per share in 2021.