Tasnee under Al Rajhi Capital's 'review' for further clarity on Cristal’s TiO2 sale

Al Rajhi Capital maintained to place National Industrialization Co. (Tasnee) under review until further clarity about sale of Cristal’s North American titanium dioxide (TiO2) business to INEOS.

When the deal is completed, Tasnee’s fair value may decline from current levels despite being leaner by transferring its complex and geographically diverse TiO2 assets, lower debt and focus on its petrochemical assets, Al Rajhi Capital said in a recent note.

“Overall, we see challenges emerging such as impairment, tight liquidity and lower EPS post the deal,” the brokerage firm added.

The deal was signed at a time when Tasnee was in losses as TiO2 price stood at nearly $2400/ton. Now TiO2 price has recovered and the opportunity cost for Tasnee would be the healthy EBITDA generating from this segment. Back then, EBITDA from this segment was SAR265 million, compared to SAR 1.6 billion now.

Post the deal, a reduction in Tasnee’s equity is likely depending on the book value of Tronox included. In addition, there are risks of more impairments that can be expected from Tasnee’s other assets. Major shareholders have lowered their stakes in the company.

The average target price based on four scenarios stands at SAR 17.3, Al Rajhi Capital said, adding that the rally is done and the stock may drop from current levels.   

“Despite the valuation impact, we believe exiting TiO2 business is a wiser decision in the long run for Tasnee considering that it is a relatively smaller industry with supply and demand shocks,” the brokerage firm added.