TAQA Arabia’s diversified activities reduce its vulnerability to oil market fluctuations: Expert

Daily News Egypt
6 Min Read

There have been speculations recently about a possible decline in the energy sector, especially after the Secretary-General of the Organization of Petroleum Exporting Countries (OPEC) Haitham Al-Ghais warned last May of the decline in global investments in the oil sector, which will cause a decline in supply. 

Despite these fluctuations in the energy sector, which created many challenges, the Egyptian capital market witnessed a boom recently after the listing of TAQA Arabia, one of the companies of Qalaa Holdings, on the Egyptian Exchange (EGX).

Dealers in the stock exchange said that the local energy sector is in the safe zone. The impact could be minimal in case OPEC decided to reduce oil production, which could increase energy prices again.

Mostafa Shafea, head of research at Arabeya Online, the securities trading company, said that the company’s diversification of activities will make its impact on global developments limited, especially that its profit margins are stable, though they will be slightly affected in 2020.

He added that the problem of the Egyptian market is not in the energy sector, but in the market as a whole, especially with capital’s concerns about the economic conditions, and the possibility of Egypt exiting from the MSCI Emerging Markets Index.

Shafea believes that after the decline of global energy prices, they would rise again, supported by the scarcity of supply after OPEC cut its oil production.

Trading the shares of TAQA Arabia started on Sunday, after the Financial Regulatory Authority (FRA) in Egypt gave Qalaa Holdings the green light to offer its subsidiary last week, starting at a nominal value of EGP 0.50 per share.

In a related context, Prime Securities determined the fair value of TAQA Arabia at about EGP 7.9bn, or EGP 5.9 per share. The discounted cash flow model resulted in a slightly lower fair value of EGP 7.4bn, or EGP 5.5 per share.

It explained that the combination of the two valuations created an average equity value of EGP 7.7bn, or EGP 5.7 per share, which indicates a 12-month price target of EGP 7.4.

Taqa Arabia is the largest private sector company in the field of energy distribution in Egypt, as the company has more than 20 years of experience in investing and operating infrastructure networks for the energy sector, from natural gas distribution to the generation and distribution of electric power and marketing petroleum products. TAQA Arabia also provides its services through five subsidiary sectors, which are the gas sector, the electricity sector, the petroleum products marketing and distribution sector, the solar energy sector, and the water sector.

The company’s stock closed down by more than 20% by the end of last Wednesday’s trading, to reach a price level of EGP 15.85 per share, with transactions worth EGP 5.5m.

Mohamed Abdel Hakim, head of the trading department at Ostool Securities Trading Company, said that offering the shares of TAQA Arabia affects the energy sector positively, especially that its business model is new to the Egyptian Stock Exchange. Nevertheless, the performance will be negatively affected due to the drop in the prices of gas and petroleum, which could negatively affect the business results of the sector’s companies. 

Research indicated that the shares of TAQA Arabia and their business model are similar to its activity with the Egyptian Gas Company and the Kuwaiti Holding Company. The current market price for Egyptian gas amounts to EGP 31 per share, and expresses a historical profitability multiplier of 9.9 times for the year 2022, and a future profitability multiplier of 7.7 times for 2023, compared to the earnings multiple of TAQA Arabia at 22 times.

The research showed that the Egyptian Kuwaiti Holding share is currently traded at a market price of $1.014 per share and EGP 35.88, reflecting a historical profitability multiple for 2022 of 4.8 times per dollar share and 5.5 times per pound share.

The research recommended buying TAQA Arabia’s share if it trades at levels of EGP 4-5, and selling if it trades above EGP 8.90.It advised buying the shares of Egypt Gas and Kuwaiti Holding, setting a target price for Egypt Gas shares at EGP 74, and EGP 120 for the Kuwaiti Holding share.

Taqa Arabia offered its shares to investors through a direct offering instead of the traditional procedures for public subscription. The fair value of Taqa Arabia’s shares is EGP 8.90 per share. The value of the company is estimated at about EGP 12bn.

The company’s capital reached EGP 676.2m, divided into 1.352 billion shares. Qalaa Holdings indirectly owns about 55% of the company’s shares, while the remaining shares are divided amongst, at least, 300 shareholders.

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