sanad · 2020-01-13 · sanad is leveraging its leading market position, passing on nesher’s...

Contract research, paid for by the above corporate entity. Equity research methods and procedures are as applied by AlphaMena. Target prices and opinions are thus exclusively determined by those methods and procedures.

Sanad

Building Prod. & Materials / Palestine

Document generated on the 09/08/2018

A BOLD BUSINESS MODEL TRANSFORMATION

Add Upside potential : 12.9%

Target Price (6 months) 2.44

Share Price $ 2.16

Market Capitalisation $M 150

Price Momentum NEGATIVE

Extremes 12Months 2.16 2.70

Bloomberg ticker SANAD PS

Analyst

Kais KRIAA [email protected]

@ www.alphamena.org

+216 31 366 360

[email protected]

KEY DATA 12/16A 12/17A 12/18E 12/19E 12/20E

Adjusted P/E (x) 20.5 14.9 28.8 19.9 11.4

Dividend yield (%) 0.00 1.79 2.31 2.31 2.31

EV/EBITDA(R) (x) 12.0 18.3 26.5 18.1 11.6

Adjusted EPS ($) 0.11 0.17 0.08 0.11 0.19

Growth in EPS (%) n/a 60.9 -55.8 44.3 74.4

Dividend ($) 0.00 0.05 0.05 0.05 0.05

Sales ($M) 30.8 196 207 228 251

Other margin (%) 10.9 7.59 6.61 8.68 13.6

Attributable net profit ($M) 2.32 9.12 5.19 7.51 13.1

ROE (after tax) (%) 3.73 12.3 6.01 8.40 13.6

Gearing (%) 4.64 50.4 99.0 121

Last forecasts updated on the 09/08/2018

Benchmarks Values ($) Upside Weight

DCF 3.21 49% 35%

NAV/SOTP per share 2.64 22% 20%

EV/Ebitda Peers 1.06 -51% 20%

P/E Peers 2.39 11% 10%

Dividend Yield Peers 1.20 -44% 10%

P/Book Peers 4.32 100% 5%

TARGET PRICE 2.44 13% 100%

Conflicts of interest Corporate broking NO

Trading in corporate shares NO

Analyst ownership NO

Advising of corporate (strategy, marketing, debt, etc) NO

Research paid for by corporate NO

Provision of corporate access paid for by corporate NO

Link between AlphaMena and a banking entity NO

Brokerage activity at AlphaMena NO

Client of AlphaValue Research NO

mailto:[email protected]

http://www.alphamena.org/

mailto:[email protected]

ALPHAMENA CORPORATE SERVICES

Sanad (Add)Cement & Aggregates / Palestine

August 9 2018 Copyright Alphavalue - 2018 – www.alphamena.org

ContentsContentsContentsContents

Body of research.................................................................................................................. 3

Businesses & Trends...................................................................................................... 4

Money Making................................................................................................................. 9

Debt................................................................................................................................. 11

Valuation......................................................................................................................... 12

DCF................................................................................................................................. 14

NAV/SOTP...................................................................................................................... 15

Worth Knowing................................................................................................................ 16

Financials........................................................................................................................ 17

Pension Risks.................................................................................................................. 24

Governance & Management........................................................................................... 26

Graphics.......................................................................................................................... 28

Methodology......................................................................................................................... 31

Body of research




For the time being, Sanad Construction Resources’ history is marked by two milestones: The holding was established on 27/01/2016, through a consolidation of all commercial activities of the Palestine Investment Fund in the construction materials trading and manufacturing sector, Cement industry particularly, under one company. 23/11/2016 is the second key date in Sanad’s recent history which corresponds to the Public extraordinary meeting, approving a US$14.1m IPO. There will be a third date (presumably in 2020) that will mark the Sanad Group’s history, namely the creation of the first cement mill in Palestine.

Sanad Construction Resources’ operations are organised into 3 business units:

• Commercial Activity: is currently the main contributor to Sanad’s revenue, which encompasses importing and trading activities of cement, steel, and other construction materials.

• Industrial Activity: This segment has been recently created, as the main projects regarding the construction of a cement mill in the South of Palestine and the stone crushing.• Investment Activity: consists of investing in companies operating in the construction materials sector.

The legal framework weighs on the cement market in PalestineThe cement market in Palestine is an almost unique case in the MENA region. It is a market that does not experience an overcapacity nor sluggish demand context. The cement sector is rather facing considerable supply regulation issues on political implications and constraints imposed by Israel.

In Palestine, the cement is wholly imported as there are no cement plants established in the Palestinian territories. Like the majority of economic and commercial activities in Palestine, the cement sector is subject to the provisions of the Paris

Protocol (May 1994). The quota for the entire Palestinian territory (Gaza and West Bank) is capped at 400 Kt. This threshold concerns Egyptian and Turkish imports. The Israeli cement is not included in the quota calculation. In 2017, thanks to the improvement of the quality of their products (certified by Israeli authorities), the cement produced by the Jordanian cement makers are no longer included in quota calculation. However, the 400 Kt ceiling and Israeli cement are insufficient to meet the growing demand during the last years (about 5.7% average growth over the period 2003-2017). Furthermore, it is possible to exceed the 400 Kt volume constraint, through imports from Jordan and Turkey, but it is necessary to obtain prior

authorisations from the Standards Institute of Israel and Palestine Standards Institution. These import impediments and their inflationary impact prompted Palestinians to build their own cement plant, hence the Sanad Construction Resources project.

The cement imports in Palestine concern the bulk and bagged products. The market is divided equally or almost equally between the two products, with a higher market share for bulk cement.

Cement consumption in Palestine has experienced significant rise during the last years. 2017 demand reached 2.8 Mt, up from only 1.3 Mt in 2007. This 7.5% average growth brings cement per capita consumption to 595 kg, a high level (world average at 450 kg) which reflects the huge potential of the sector, especially with political tensions ease.

Businesses & Trends



Businesses & Trends


The Palestinian cement market is driven by prices as it was subject to the quota system and imports restrictions and marked by strong and rising demand. Despite the various disruptions experienced by the Palestine cement market, price levels remain high compared to the other MENA countries. The price per ton is around US$105 in West Bank, two times higher than prices in the Middle East or even Maghreb. In the absence of an effective competition (and this is in favour of Sanad

Construction Resources, the market leader) and import restrictions exacerbated by geopolitical issues would continue to sustain the prices upward trend. The construction of a cement mill by Sanad would ease this pressure on prices, but it does not definitively solve the cement supply issue throughout the Palestinian territories, particularly in Gaza strip.Sustained population growth is the main driver of cement demand in Palestine, as the construction and real estate sector is the largest consumer of bagged cement (80% of bagged cement). The geopolitical context could temper the demand growth, but the operators have become accustomed to a lasting instability situation. Moreover, Palestinians do not fear this

vulnerable environment and continue to invest, especially in housing. The property sector, which is the main cement consumer, suffers relatively less from the precariousness of the current political context and the demand continues to be sustained because of the scarcity and the high cost of land. For the next three years, we are taking a cautious stance (taking into account the political issues) on cement consumption in Palestine, expecting c.2.9% CAGR vs. 7.5% over the last ten years.



Businesses & Trends


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Sanad, the Palestinian cement leader With imports limited by the quota system (ceiling at 400 Kt/year), and the absence of a plant installed in the territories, the Israeli cement dominates the Palestinian market. Nesher is the Israeli leader with 8 Mt nominal capacity, but an effective capacity limited to less than 6 Mt. Thus, Nesher is the largest cement exporter in Palestine (about 80% of the market),

through an exclusive contract with Sanad. Sanad’s market share is c.63% in 2017, of which 73% for bulk cement and above 50% for bagged cement. In short, Sanad is the swing player in the cement market in Palestine where 17 registered companies are currently operating.



Businesses & Trends


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Sanad is leveraging its leading market position, passing on Nesher’s price rise to its sales prices. However, this pricing capacity conceals a weakness: Sanad’s dependence on Nesher’s cement. Moreover, the Israeli cement maker has informed Sanad of his inability to supply more than 1.4 Mt/year. With a potential return of Gaza’s demand to its normal level (1 Mt), Sanad could lose some market shares, particularly when its competitors succeed to obtain the necessary authorisations to import cement from other neighbouring markets including Jordan (18% of imported cement in 2017). Sanad is also the exclusive importer of cement produced by three Jordanian companies (Manaseer, Northern Cement and Qatrana). However,

the cement market has been upset by the entry of new competitors both in the Palestinian market and Israel. The huge production surplus in the neighbouring countries (6 MT in Jordan) has flooded the Palestinian market, putting pressure on sales prices. In other words, Sanad’s pricing power has been weakened. In general, the structural problem of cement market in Palestine is still persisting. The supply issues as well as the dependence on Nesher’s cement, led Sanad and the Palestinian authorities to mull over the cement mill construction.

A transformation of the business model, from commercial to industrialThe cement plant construction is an industrial aim with political implications. As a first step to build its plant through its wholly-owned subsidiary (Sanad South Company for Grinding and Packing), Sanad will establish a cement mill with 1 Mt/year capacity. The cost of the project has been estimated at US$60m and Sanad expects to start commercial production by 2020. The group is extremely optimistic about the project’s profitability, forecasting a 32% internal rate of return. This high rate

partly justifies this bold move to enter the industry and to not settle for its leading position in cement trading market. This project will face unforeseen events (in particular amid an unstable political context) which will have an impact on the initially estimated cost, on the funding (the current scheme is based on a US$40m debt) and therefore, on its profitability. Nevertheless, we appreciate this dynamic strategy. For its first year of full production (2021), 53% of the cement sold by Sanad Group will be produced by Sanad South.

Various projects in the pipeline!Sanad plans to become a real Palestinian shop for building products and materials. Through the establishment of Asasat for Stone Industries (51% owned by Sanad Construction Resources), Sanad intends to build three crushers with a total capacity of 3 Mt/year. The investment, which will cost more than US$36m (US$12m funded by Bank borrowing), will allow Sanad, through the three quarries, to offer one of the main products used by Palestinians in the construction sector. Our

model does not take into account Asasat’s figures.In 2017, Sanad also embarked on the steel sector following the creation of Solb For Steel Manufacture & Trade. The Palestinian market consumes more than 250,000 t/year of imported steel (worth around US$175m), the bulk of which comes from Turkey and some neighbouring countries. The largest customer of imported steel is the construction sector (80% of the market). Like the cement sector, the steel sector is driven by extremely high prices and Sanad, which has the necessary financial resources and operational means, could benefit from a booming demand. For its first year of production, Sanad

has managed to sell more than 36 Kt and reported a US$19.7m revenues. For the next three years, we expect a 15% average revenue growth, with a 17% market share by 2020.

Sanad also offers its customers various construction materials, including sand and basalt. The revenue contribution of other products and services is limited to 2% and is expected to remain stable for the next three years.

Over 2018-2020, we expect a 9.02% revenue CAGR with a cement’s hegemonic contribution at around 89% by 2020, including 40% of cement produced by Sanad South.



Businesses & Trends


Sector 12/17A 12/18E 12/19E 12/20E Change 18E/17 Change 19E/18E

$M of % total $M of % total

Total sales 196 207 228 251 11 100% 21 100%

O/w organic growth (%)

0.00 0.00 0.00 0.00 0 0% 0 0%

Cement Cement & Aggregates

190 197 218 223 7 64% 21 100%

Sands and Aggregates

Cement & Aggregates

2.67 2.93 3.29 3.68 0 2% 0 2%

Steel Building Prod. Distribution

19.7 23.0 25.2 29.6 3 30% 2 10%

Basalt Cement & Aggregates

1.72 1.83 1.95 2.09 0 1% 0 1%

Other -17.5 -18.4 -20.3 -7.49 -1 -8% -2 -9%

We address exposures (eg. how much of the turnover is exposed to the $ ) rather than sensitivities (say, how much a 5% move in the $ affects the bottom line). This is to make comparisons easier and provides useful tools when extracting relevant data. Actually, the subject is rather complex on the ground. The default position is one of an investor managing in €. An investor in £ will obviously not react to a £ based stock trading partly in € as would a € based investor. In addition, certain circumstances can prove difficult to unravel such as for eg. a € based investor confronted to a Swiss company reporting in $ but with a quote in CHF... Sales exposure is probably straightforward but one has to be careful with deep cyclicals. Costs exposure is a bit less easy to determine (we do not allow for hedges as they can only be postponing the day of reckoning). How much of the equity is exposed to a given subject is rarely straightforward but can be quite tellingIn addition, subjects are frequently intertwined. A $ exposure may encompass all revenues in $ pegged currencies and an emerging currency exposure is likely to include $ pegged currencies as well. Exposure to global warming issues is frequently indirect and may require to stretch a bit imagination.

Divisional Breakdown Of Revenues

Revenues Costs Equity

Dollar 100.0% 5.0% 100.0%

Emerging currencies 0.0% 85.0% 0.0%

Long-term global warming 0.0% 0.0% 0.0%

Key Exposures

Palestine 100.0%

Sales By Geography



Businesses & Trends


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Enjoying a leading position (a market share above 60% in the case of Sanad) giving it a strong pricing power, a corporate would not consider a transformation of its business model and would not implement such ambitious project that would upset its profitability profile and its cash generation capacity. Sanad has made a bold decision and has embarked on projects, including the establishment of a cement mill, which will transform its business model.

Cement (trading) segment is obviously the main contributor to Sanad’s profits (91% of Sanad’s 2017 gross margin),

displaying a 15.7% gross margin. Sanad’s hegemonic position allows it to have a unique price adjustment capacity in the Palestinian cement sector. However, the pass on of the supply rising costs to selling prices could not last in the long term. Thus, the marketing of its own cement will give it some leeway in Sanad’s selling prices formation without losing ground in terms of margins.

The 2016-2017 operating margin (an average of 5.9%) is comparable to that generated by European building products retailers (cf. table below). This margin level was made possible thanks to an average EBITDA margin around 7.1% vs. 9.7% for the European building retailers.

During 2018-2019, the construction of the US$60m mill is expected to have a slight impact on Sanad’s operating margins, but overall, Sanad’s business model transformation would not shake its profitability. Furthermore, we do not expect any losses for the next three years.

However, any delay in the plant construction timetable would have a negative impact on Sanad’s results. The case of

Carthage Cement (a 2Mt/year cement plant that was built recently through an IPO) confirms these difficulties after a significant delay in the construction timetable. Carthage Cement and Sanad are different cases though with a different project amount ($450m vs. $60m) and a weak balance sheet structure for the Tunisian cement maker compared to the Palestinian operator (Carthage Cement’s plant is funded by 85% bank debt). Moreover, the current Sanad’s operations already generate some cash. However, a potential delay in the project schedule remains a risk factor and could impact Sanad’s earnings.

Sustained by US$196m revenues, Sanad generated a net profit of US$9.122m in 2017, i.e. a satisfactory net margin of 4.73%. This appreciable margin level also takes advantage from the contribution of equity-accounted results of US$0.725m. The associates are created under the Bonyan company, which consists in promoting and acquiring stakes in SME operating in building products & materials sector.In the coming years, Sanad’s margins level should align with that of cement makers rather than Building materials distributors. Controlling energy costs (around 30% of cement makers’ cost structure) becomes Sanad’s main focus to

preserve its margins. According to the management’s calculations, the cement mill should contribute to 32% of consolidated EBITDA (an expected EBITDA margin of c.18.2%) when it reaches its cruising speed (probably in 2021). For the next three years, we expect an average EBITDA margin of 6.4%, as the cement mill would marginally impact our forecasts (partly in 2020).The 18% EBITDA margin objective is reasonable in our view, given a favourable context where demand is outstripping supply, and a leading position that will allow Sanad to always adjust its selling prices. The MENA cement companies tracked

by AlphaMena generate high EBITDA margins, while all of these cement makers are operating in markets characterised by significant overcapacity.

Money Making



Money Making


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12/17A 12/18E 12/19E 12/20E Change 18E/17 Change 19E/18E

$M of % total $M of % total

Total 14.9 (1) 13.7 (1) 19.8 (1) 34.2 (1) -1 100% 6 100%

Cement 29.7 29.0 36.4 36.8 -1 58% 7 121%

Sands and Aggregates 1.02 1.13 1.28 1.45 0 -9% 0 2%

Steel 1.35 1.70 2.11 3.07 0 -29% 0 7%

Basalt 0.26 0.28 0.32 0.37 0 -2% 0 1%

Other/cancellations -17.5 -18.4 -20.3 -7.49 -1 75% -2 -31%

12/17A 12/18E 12/19E 12/20E

Total 7.59% 6.61% 8.68% 13.6%

Cement 15.7% 14.7% 16.7% 16.5%

Sands and Aggregates 38.4% 38.4% 38.9% 39.4%

Steel 6.86% 7.36% 8.36% 10.4%

Basalt 15.1% 15.5% 16.5% 17.5%

Sanad’s ROCE will obviously be upset by the expected transformation of its business model. The construction of the cement

mill will result in the US$60m increase in the group’s invested capital. Given its offer flexibility, with the ability to switch between imported cement (especially from Nesher) and the cement produced by the new mill, Sanad has sufficient room for manoeuvre to preserve an acceptable margins level. Over the 2008-2020 period, the invested capital inflation by almost US$127m, would not have a significant impact on the ROCE. On the contrary, Sanad should benefit from the shift to capital-intensive industry, where the margins are more comfortable. According to our model, 2020 ROCE is expected at 6.31% vs.

5.55% in 2017.

Divisional Other profit breakdown Analysis

1. Gross Profit

Divisional Other profit breakdown Analysis margin



Money Making


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12/17A 12/18E 12/19E 12/20E

EBITDA $M 10.6 8.33 15.1 24.5

Funds from operations (FFO) $M 10.3 7.09 10.3 18.1

Ordinary shareholders' equity $M 85.4 87.3 91.4 101

Gross debt $M 29.9 68.1 120 131

o/w Less than 1 year - Gross debt $M 15.8 10.0 12.0 20.0

o/w 1 to 5 year - Gross debt $M 14.1 58.1 108 111

of which Y+2 $M 2.10 0.00 0.00 0.00

of which Y+3 $M 2.04 0.00 0.00 0.00

of which Y+4 $M 10.0 0.00 0.00 0.00

of which Y+5 $M 0.00 0.00 0.00 0.00

o/w Beyond 5 years - Gross debt $M 0.00 0.00 0.00 0.00

+ Gross Cash $M 6.29 3.76 3.25 3.73

= Net debt / (cash) $M 23.7 64.3 117 127

Bank borrowings $M 29.9 68.1 120 131

Issued bonds $M 0.00 0.00 0.00 0.00

Financial leases liabilities $M 0.00 0.00 0.00 0.00

Mortgages $M 0.00 0.00 0.00 0.00

Other financing $M 0.00 0.00 0.00 0.00

of which commercial paper $M 0.00 0.00 0.00 0.00

Gearing (at book value) % 4.64 50.4 99.0 121

Adj. Net debt/EBITDA(R) x 2.24 7.72 7.72 5.19

Adjusted Gross Debt/EBITDA(R) x 2.89 8.32 8.05 5.44

Adj. gross debt/(Adj. gross debt+Equity) % 26.4 44.2 57.1 56.9

Ebit cover x -4.79 14.0 3.40 4.48

FFO/Gross Debt % 33.8 10.2 8.44 13.6

FFO/Net debt % 43.7 11.0 8.81 14.2

FCF/Adj. gross debt (%) % -109 -48.6 -39.8 -5.00

(Gross cash+ "cash" FCF+undrawn)/ST debt x -1.70 -2.99 -3.77 -0.15

"Cash" FCF/ST debt x -2.21 -3.37 -4.04 -0.33

As of 31/12/2017, the net debt amounted to US$23.7m with a balance sheet structure which does not take into account the

cement mill (US$60m) and crusher plants (US$36m). The US$29.9m gross debt was almost equally divided between the 1-year debt portion and beyond 1-year debt tranche (of which US$10m at a 4-year maturity). This debt level is low, with a 2017 average gearing at only 4.64%.The shift to a capital-intensive industry will be essentially funded largely by bank borrowings. The cement mill construction was funded by US$40m bank borrowing. The real risk of this transformation plan is to meet the deadlines. The delays generally have a significant impact on the company’s cash generation capacity. Nevertheless, Sanad’s current operations

ensure solid cash generation capacity (EBITDA conversion rate into FFO stands at 97% in 2017), allowing it to have some funding leeway. This room to manoeuvre will be very important in the next three years in order for Sanad to not exceed the expected indebtedness. According to our calculations, the expected cash flows would be insufficient to cover the dividend payment (negative FCF for the next three years), due to the heavy capex (US$111m cumulated capex over the next three years) and the cost of debt increase (increased debt to fund the planned projects). Moreover, we expect a stable dividend for the next three years, i.e. an expected payment of only US$3.465m/year.

Debt

Funding - Liquidity



Debt


Sanad Construction Resources’ valuation is a tough task with the planned transformation of its business model. The difficulties of this task consist to find the right balance (the fair valuation) between the current trading operations/assets and

the future investments that would reshape Sanad’s industrial profile. The market would have no doubt, looking at Sanad as an industrial entity as the recent US$14.1m IPO would fund the business model transformation.

Our DCF valuation (details on the following page) is based on a 10% revenue growth out-year bolstered by the planned entry into production (1 Mt since 2021) for the cement mill and the expected increase in demand during the next years. This rate, which may seem optimistic compared to the last few years, relies on the sustained demand and the solid pricing power of

Sanad, especially with the limitation in its dependence on Nesher.

We are also expecting a 12% annual increase in EBITDA, implying a margin at around 11.3% starting from 2028. Sanad’s new industrial profile would positively impact its operating margins, notably the EBITDA margin.

The NAV/Sum of the Parts is based on the valuation of the various companies /business units. The current operations were valued using EV/Sales multiples, ranging from 1x to 1.6x. Sanad South is valued at replacement cost. We valued the new division at US$100/t, reflecting the current cement price context in Palestine. The recent transactions in the cement sector were carried out on the base of range between US$175 EV/t and US$270 EV/t. Taking into account Sanad South project being a cement mill and not an integrated cement plant, we applied a 75% discount to the low range. Within our NAV, equity associates are valued by sector at 14x-18x PE.

EV/Mt for the MENA cement makers covered by AlphaMena:

For the peer-based valuation, we have considered 7 cement makers tracked by AlphaMena. We have granted a 30%

premium to Sanad factoring in this current transition period, waiting for the entry into production of the cement mill.

Benchmarks Values ($) Upside Weight

DCF 3.21 49% 35%

NAV/SOTP per share 2.64 22% 20%

EV/Ebitda Peers 1.06 -51% 20%

P/E Peers 2.39 11% 10%

Dividend Yield Peers 1.20 -44% 10%

P/Book Peers 4.32 100% 5%

Target Price 2.44 13%

Valuation

Valuation Summary



Valuation


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Computed on 18 month forecasts P/E (x) Ev/Ebitda (x) P/Book (x) Yield(%)

Peers ratios 19.3 10.9 2.98 5.94

Sanad's ratios 22.6 20.3 1.67 2.31

Premium 30.0% 30.0% 30.0% 30.0%

Default comparison based valuation ($) 2.39 1.06 4.32 1.20

LafargeHolcim Maroc 18.9 11.2 3.85 3.69

Ciments du Maroc 24.3 10.4 4.96 6.45

Saudi Cement 13.1 10.6 2.63 10.2

SPCC 12.7 9.26 1.53 8.45

Suez Cement -13.6 14.1 0.81 0.00

Carthage Cement -6.34 19.9 -7.95 0.00

SCB -8.04 47.7 2.64 0.00

Comparison based valuation



Valuation


12/17A 12/18E 12/19E 12/20E Growth 12/21E 12/28E

Sales $M 196 207 228 251 10.0% 276 538

EBITDA $M 10.6 8.33 15.1 24.5 12.0% 27.5 60.7

EBITDA Margin % 5.39 4.03 6.62 9.76 9.94 11.3

Change in WCR $M -35.4 0.34 -5.66 -7.75 2.00% -7.91 -9.08

Total operating cash flows (pre tax) $M -23.4 8.67 9.46 16.8 19.5 51.6

Corporate tax $M -1.67 -0.82 -1.28 -2.20 2.00% -2.25 -2.58

Net tax shield $M 0.50 -0.13 -1.07 -1.27 2.00% -1.29 -1.48

Capital expenditure $M -9.79 -41.1 -53.1 -17.0 -10.0% -15.3 -7.32

Capex/Sales % -4.99 -19.9 -23.3 -6.77 -5.54 -1.36

Pre financing costs FCF (for DCF purposes) $M -34.3 -33.4 -46.0 -3.71 0.71 40.2

Various add backs (incl. R&D, etc.) for DCF purposes

$M

Free cash flow adjusted $M -34.3 -33.4 -46.0 -3.71 0.71 40.2

Discounted free cash flows $M -34.3 -33.4 -42.4 -3.16 0.55 17.9

Invested capital $ 113 156 214 235 212 101

DCF Valuation Per Share

WACC % 8.41

PV of cashflow FY1-FY11 $M 34.7

FY11CF $M 41.0

Normalised long-term growth"g" % 2.00

Terminal value $M 640

PV terminal value $M 285

PV terminal value in % of total value % 89.2

Total PV $M 320

Avg net debt (cash) at book value $M 90.5

Provisions $M 1.24

Unrecognised actuarial losses (gains) $M 0.00

Financial assets at market price $M 11.6

Minorities interests (fair value) $M 17.5

Equity value $M 222

Number of shares Mio 69.3

Implied equity value per share $ 3.21

Assessing The Cost Of Capital

Synthetic default risk free rate % 3.50

Target equity risk premium % 5.00

Tax advantage of debt finance (normalised)

% 30.0

Average debt maturity Year 5

Sector asset beta x 1.01

Debt beta x 0.60

Market capitalisation $M 150

Net debt (cash) at book value $M 64.3

Net debt (cash) at market value $M 57.9

Company debt spread bp 300

Marginal Company cost of debt % 6.50

Company beta (leveraged) x 1.28

Company gearing at market value % 43.0

Company market gearing % 30.1

Required return on geared equity % 9.91

Cost of debt % 4.55

Cost of ungeared equity % 8.54

WACC % 8.41

DCF Calculation



DCF


% owned Valuation technique

Multiple used

Valuation at 100% ($M)

Stake valuation

($M)

In currency per share

($)

% of gross assets

Cement (Trading) 100% EV/Sales 1 136 136 1.96 46.1%

Sanad South 100% Volume

based valuation

100 100 100 1.44 33.9%

Asasat 100% EV/Sales 1.5 44.5 44.5 0.64 15.1%

Steel 50.0% EV/Sales 1 29.7 14.8 0.21 5.03%

Concrete (Associates) 20.0% PE 18 36.5 7.31 0.11 2.48%

Sands & Aggregates 100% EV/Sales 1.5 5.44 5.44 0.08 1.84%

Basalt 100% EV/Sales 1.6 3.29 3.29 0.05 1.12%

Asphalt (Associates) 35.0% PE 16 5.54 1.94 0.03 0.66%

Sands (Associates) 33.0% PE 16 4.21 1.39 0.02 0.47%

Cement (Associates) 35.0% PE 14 2.72 0.95 0.01 0.32%

Stone (Associates) 49.0% PE 15 0.10 0.05 0.00 0.02%

Other -20.8 -0.30 -7.05%

Total gross assets 295 4.26 100%

Net cash/(debt) by year end -112 -1.62 -38.0%

Commitments to pay

Commitments received

NAV/SOTP 183 2.64 62.0%

Number of shares net of treasury shares - year end (Mio) 69.3

NAV/SOTP per share ($) 2.64

Current discount to NAV/SOTP (%) 18.1

NAV/SOTP Calculation



NAV/SOTP (edit)


Sanad Construction Resources was established on 27/01/2016 following the decision to consolidate all construction

materials trading and manufacturing operations owned by the Palestine Investment Fund. The Holding establishment has a strategic scope that aims to limit the Palestinian construction sector’s dependence on Israel.

Sanad’s Operations

Palestine Investment Fund –PIF-, is a Palestinian sovereign fund established in 2013, targeting to promote the local economy through the acquisition of strategic stakes in already set up companies and/or the creation of new corporates.

PIF’s key figures are illustrated in the following chart:

Name % owned Of which % voting rights

Of which % free to float

Palestine Investment Fund and related parties 51.0% 51.0% 0.00%

Aswaq Company for Investment Portfolios 38.9% 38.9% 0.00%

Other Governmental entities 2.91% 2.91% 0.00%

Apparent free float 7.19%

Shareholders Shareholders of shareholders

Aswaq Company for Investment Portfolios Palestine Investment Fund and related parties

Worth Knowing

Shareholders

Key shareholders of shareholders



Worth Knowing


http://pdf-internal.alphamena.org/Secure/Handlers/ImageStampHandler.ashx?Id=3933436e-c59b-e811-80e3-00155d062807&type=.png

http://pdf-internal.alphamena.org/Secure/Handlers/ImageStampHandler.ashx?Id=6b32b489-0c68-e811-80dd-00155d062807&type=.png

12/17A 12/18E 12/19E 12/20E

Adjusted P/E x 14.9 28.8 19.9 11.4

Reported P/E x 19.2 28.8 19.9 11.4

EV/EBITDA(R) x 18.3 26.5 18.1 11.6

P/Book x 2.04 1.71 1.64 1.48

Dividend yield % 1.79 2.31 2.31 2.31

Free cash flow yield % -19.0 -22.5 -32.4 -4.45

Average stock price $ 2.53 2.16 2.16 2.16

12/17A 12/18E 12/19E 12/20E

Sales $M 196 207 228 251

Sales growth % 537 5.29 10.5 9.94

Sales per employee $th 1,344 1,415 1,564 725

Organic change in sales % 0.00 0.00 0.00 0.00

Millions tons of cement & clinker capacity MTon 0.00 0.00 1.00 1.00

Purchases and external costs (incl. IT) $M -182 -195 -210 -218

Staff costs $M -3.20 -3.26 -3.33 -8.05

Operating lease payments $M 0.00 0.00 0.00 0.00

Cost of sales/COGS (indicative) $M -186 -198 -213 -227

EBITDA $M 10.6 8.33 15.1 24.5

EBITDA(R) $M 10.6 8.33 15.1 24.5

EBITDA(R) margin % 5.39 4.03 6.62 9.76

EBITDA(R) per employee $th 72.4 57.1 104 70.8

Depreciation $M -1.75 -1.84 -2.41 -5.01

Depreciations/Sales % 0.89 0.89 1.06 2.00

Amortisation $M 0.00 0.00 0.00 0.00

Additions to provisions $M -0.92 -0.60 -0.60 -0.60

Reduction of provisions $M 0.00 0.00 0.00 0.00

Underlying operating profit $M 7.90 5.89 12.1 18.9

Underlying operating margin % 4.03 2.85 5.31 7.53

Other income/expense (cash) $M 1.40 -0.01 0.00 0.00

Other inc./ exp. (non cash; incl. assets revaluation) $M 0.00 0.00 0.00 0.00

Mark to market on various operation-related hedges $M 0.00 0.00 0.00 0.00

Earnings from joint venture(s) $M 0.00 0.00 0.00 0.00

Actual dividends from Jvs $M 0.00 0.00 0.00 0.00

Actual accrued cash flows from JV $M 0.00 0.00 0.00 0.00

Impairment charges/goodwill amortisation $M 0.00 0.00 0.00 0.00

Operating profit (EBIT) $M 9.30 5.89 12.1 18.9

Interest expenses $M -0.46 -2.55 -5.70 -6.35

of which effectively paid cash interest expenses $M -0.06 0.00 0.00 0.00

Financial income $M 0.38 0.40 0.40 0.40

Other financial income (expense) $M 1.73 1.73 1.73 1.73

Net financial expenses $M 1.65 -0.42 -3.56 -4.22

of which related to pensions $M 0.00 0.00 0.00

Pre-tax profit before exceptional items $M 11.0 5.47 8.55 14.7

Exceptional items and other (before taxes) $M 0.00 0.00 0.00 0.00

of which cash (cost) from exceptionals $M 0.00 0.00 0.00 0.00

Current tax $M 0.00 -0.82 -1.28 -2.20

Impact of tax loss carry forward $M 0.00 0.00 0.00 0.00

Deferred tax $M -1.67 0.00 0.00 0.00

Corporate tax $M -1.67 -0.82 -1.28 -2.20

Tax rate % 15.3 15.0 15.0 15.0

Net margin % 4.73 2.25 3.18 4.97

Equity associates $M 0.72 1.10 1.33 1.61

Actual dividends received from equity holdings $M 0.00 0.00 0.00 0.00

Minority interests $M -0.88 -0.56 -1.09 -1.00

Actual dividends paid out to minorities $M -0.40 -0.40 -0.40 -0.40

Valuation Key Data

Consolidated P&L



Financials


Income from discontinued operations $M 0.00 0.00 0.00 0.00

Attributable net profit $M 9.12 5.19 7.51 13.1

Impairment charges/goodwill amortisation $M 0.00 0.00 0.00 0.00

Other adjustments $M -1.40 0.00 0.00 0.00

Adjusted attributable net profit $M 7.72 5.19 7.51 13.1

Interest expense savings $M 0.00 0.00 0.00 0.00

Fully diluted adjusted attr. net profit $M 7.72 5.19 7.51 13.1

NOPAT $M 6.26 5.23 9.81 14.8

12/17A 12/18E 12/19E 12/20E

EBITDA $M 10.6 8.33 15.1 24.5

Change in WCR $M -35.4 0.34 -5.66 -7.75

of which (increases)/decr. in receivables $M -38.0 -0.01 -6.40 -6.68

of which (increases)/decr. in inventories $M -2.08 -0.15 -0.32 -2.17

of which increases/(decr.) in payables $M -2.35 1.11 2.33 2.43

of which increases/(decr.) in other curr. liab. $M 6.98 -0.61 -1.27 -1.33

Actual dividends received from equity holdings $M 0.00 0.00 0.00 0.00

Paid taxes $M -1.95 -0.82 -1.28 -2.20

Exceptional items $M 0.00 0.00 0.00 0.00

Other operating cash flows $M 1.78 0.00 0.00 0.00

Total operating cash flows $M -25.0 7.85 8.18 14.6

Capital expenditure $M -9.79 -41.1 -53.1 -17.0

Capex as a % of depreciation & amort. % 558 2,238 2,205 339

Net investments in shares $M -5.94 -3.26 0.00 0.00

Other investment flows $M 1.74 0.00 0.00 0.00

Total investment flows $M -14.0 -44.4 -53.1 -17.0

Net interest expense $M 1.65 -0.42 -3.56 -4.22

of which cash interest expense $M -0.06 -0.42 -3.56 -4.22

Dividends (parent company) $M 0.00 -3.30 -3.47 -3.47

Dividends to minorities interests $M -0.40 -0.40 -0.40 -0.40

New shareholders' equity $M 14.1 0.00 0.00 0.00

of which (acquisition) release of treasury shares $M 0.00 0.00 0.00 0.00

(Increase)/decrease in net debt position $M 28.3 38.1 51.9 11.0

Other financial flows $M -0.10 0.00 0.00 0.00

Total financial flows $M 41.9 34.0 44.4 2.93

Change in scope of consolidation, exchange rates & other $M 0.00 0.00 0.00 0.00

Change in cash position $M 2.85 -2.52 -0.52 0.48

Change in net debt position $M -25.5 -40.7 -52.4 -10.5

Free cash flow (pre div.) $M -33.2 -33.7 -48.5 -6.66

Operating cash flow (clean) $M -25.0 7.85 8.18 14.6

Reinvestment rate (capex/tangible fixed assets) % 35.8 60.0 43.7 12.3

Cashflow Statement



Financials


12/17A 12/18E 12/19E 12/20E

Goodwill $M 25.4 25.4 25.4 25.4

Contracts & Rights (incl. concession) intangible assets $M 0.00 0.00 0.00 0.00

Other intangible assets $M 0.00 0.00 0.00 0.00

Total intangible $M 25.4 25.4 25.4 25.4

Tangible fixed assets $M 25.5 64.8 116 128

Financial fixed assets (part of group strategy) $M 7.75 12.1 13.4 15.1

Financial hedges (LT derivatives) $M 0.00 0.00 0.00 0.00

Other financial assets (investment purpose mainly) $M 0.00 0.00 0.00 0.00

of which available for sale $M 0.00 0.00 0.00 0.00

WCR $M 54.1 53.8 59.5 67.2

of which trade & receivables (+) $M 60.8 60.8 67.2 73.9

of which inventories (+) $M 2.87 3.03 3.35 5.52

of which payables (+) $M 21.0 22.1 24.4 26.8

of which other current liabilities (+) $M -11.5 -12.1 -13.4 -14.7

Other current assets $M 0.00 0.00 0.00 0.00

of which tax assets (+) $M 0.00 0.00 0.00 0.00

Total assets (net of short term liabilities) $M 113 156 214 235

Ordinary shareholders' equity (group share) $M 85.4 87.3 91.4 101

Quasi Equity & Preferred $M 0.00 0.00 0.00 0.00

Minority interests $M 2.94 3.10 3.79 4.39

Provisions for pensions $M 0.64 1.24 1.84 2.44

Other provisions for risks and liabilities $M 0.00 0.00 0.00 0.00

Deferred tax liabilities $M 0.12 0.12 0.12 0.12

Other liabilities $M 0.00 0.00 0.00 0.00

Net debt / (cash) $M 23.7 64.3 117 127

Total liabilities and shareholders' equity $M 113 156 214 235

Average net debt / (cash) $M 3.97 44.0 90.5 122

12/17A 12/18E 12/19E 12/20E

EV/EBITDA(R) x 18.3 26.5 18.1 11.6

EV/EBIT (underlying profit) x 24.5 37.5 22.6 15.1

EV/Sales x 0.99 1.07 1.20 1.14

EV/Invested capital x 1.71 1.42 1.28 1.21

Market cap $M 175 150 150 150

+ Provisions (including pensions) $M 0.64 1.24 1.84 2.44

+ Unrecognised actuarial losses/(gains) $M 0.00 0.00 0.00 0.00

+ Net debt at year end $M 23.7 64.3 117 127

+ Leases debt equivalent $M 0.00 0.00 0.00 0.00

- Financial fixed assets (fair value) & Others $M 11.6 11.6 11.6 11.6

+ Minority interests (fair value) $M 6.01 17.5 17.5 17.5

= Enterprise Value $M 193 221 274 285

Balance Sheet

EV Calculations



Financials


12/17A 12/18E 12/19E 12/20E

Adjusted EPS (bfr gwill amort. & dil.) $ 0.17 0.08 0.11 0.19

Growth in EPS % 60.9 -55.8 44.3 74.4

Reported EPS $ 0.13 0.07 0.11 0.19

Net dividend per share $ 0.05 0.05 0.05 0.05

Free cash flow per share $ -0.73 -0.49 -0.70 -0.10

Operating cash flow per share $ -0.55 0.11 0.12 0.21

Book value per share $ 1.24 1.26 1.32 1.46

Number of ordinary shares Mio 69.0 69.3 69.3 69.3

Number of equivalent ordinary shares (year end) Mio 69.0 69.3 69.3 69.3

Number of shares market cap. Mio 69.0 69.3 69.3 69.3

Treasury stock (year end) Mio 0.00 0.00 0.00 0.00

Number of shares net of treasury stock (year end) Mio 69.0 69.3 69.3 69.3

Number of common shares (average) Mio 45.5 69.2 69.3 69.3

Conversion of debt instruments into equity Mio 0.00 0.00 0.00 0.00

Settlement of cashable stock options Mio

Probable settlement of non mature stock options Mio

Other commitments to issue new shares Mio

Increase in shares outstanding (average) Mio 0.00 0.00 0.00 0.00

Number of diluted shares (average) Mio 45.5 69.2 69.3 69.3

Goodwill per share (diluted) $ 0.00 0.00 0.00 0.00

EPS after goodwill amortisation (diluted) $ 0.17 0.08 0.11 0.19

EPS before goodwill amortisation (non-diluted) $ 0.20 0.08 0.11 0.19

Actual payment $

Payout ratio % 34.3 66.7 46.1 26.5

Capital payout ratio (div +share buy back/net income) % 42.7 66.7 46.1

Per Share Data



Financials


12/17A 12/18E 12/19E 12/20E

EBITDA $M 10.6 8.33 15.1 24.5

Funds from operations (FFO) $M 10.3 7.09 10.3 18.1


Gross debt $M 29.9 68.1 120 131

o/w Less than 1 year - Gross debt $M 15.8 10.0 12.0 20.0

o/w 1 to 5 year - Gross debt $M 14.1 58.1 108 111

of which Y+2 $M 2.10 0.00 0.00 0.00

of which Y+3 $M 2.04 0.00 0.00 0.00

of which Y+4 $M 10.0 0.00 0.00 0.00

of which Y+5 $M 0.00 0.00 0.00 0.00

o/w Beyond 5 years - Gross debt $M 0.00 0.00 0.00 0.00

+ Gross Cash $M 6.29 3.76 3.25 3.73

= Net debt / (cash) $M 23.7 64.3 117 127

Bank borrowings $M 29.9 68.1 120 131

Issued bonds $M 0.00 0.00 0.00 0.00

Financial leases liabilities $M 0.00 0.00 0.00 0.00

Mortgages $M 0.00 0.00 0.00 0.00

Other financing $M 0.00 0.00 0.00 0.00

of which commercial paper $M 0.00 0.00 0.00 0.00

Gearing (at book value) % 4.64 50.4 99.0 121

Adj. Net debt/EBITDA(R) x 2.24 7.72 7.72 5.19

Adjusted Gross Debt/EBITDA(R) x 2.89 8.32 8.05 5.44

Adj. gross debt/(Adj. gross debt+Equity) % 26.4 44.2 57.1 56.9

Ebit cover x -4.79 14.0 3.40 4.48

FFO/Gross Debt % 33.8 10.2 8.44 13.6

FFO/Net debt % 43.7 11.0 8.81 14.2

FCF/Adj. gross debt (%) % -109 -48.6 -39.8 -5.00

(Gross cash+ "cash" FCF+undrawn)/ST debt x -1.70 -2.99 -3.77 -0.15

"Cash" FCF/ST debt x -2.21 -3.37 -4.04 -0.33

12/17A 12/18E 12/19E 12/20E

Tax burden (Net income/pretax pre excp income) x 0.83 0.95 0.88 0.89

EBIT margin (EBIT/sales) % 4.74 2.85 5.31 7.53

Assets rotation (Sales/Avg assets) % 242 154 123 112

Financial leverage (Avg assets /Avg equity) x 1.10 1.56 2.07 2.33

ROE % 12.3 6.01 8.40 13.6

ROA % 8.85 4.09 6.05 8.59

12/17A 12/18E 12/19E 12/20E

Y-1 shareholders' equity $M 62.3 85.4 87.3 91.4

+ Net profit of year $M 9.12 5.19 7.51 13.1

- Dividends (parent cy) $M 0.00 -3.30 -3.47 -3.47

+ Additions to equity $M 14.1 0.00 0.00 0.00

o/w reduction (addition) to treasury shares $M 0.00 0.00 0.00 0.00

- Unrecognised actuarial gains/(losses) $M 0.00 0.00 0.00 0.00

+ Comprehensive income recognition $M -0.10 0.00 0.00 0.00

= Year end shareholders' equity $M 85.4 87.3 91.4 101

Funding - Liquidity

ROE Analysis (Dupont's Breakdown)

Shareholder's Equity Review (Group Share)



Financials


12/17A 12/18E 12/19E 12/20E

Sales per staff $th 1,344 1,415 1,564 725

Staff costs per employee $th -21.9 -22.4 -22.8 -23.3

Change in staff costs % 460 2.00 2.00 142

Change in unit cost of staff % 460 2.00 2.00 2.00

Staff costs/(EBITDA+Staff costs) % 23.2 28.2 18.0 24.7

Average workforce unit 146 146 146 346

Europe unit 0.00 0.00 0.00 0.00

North America unit 0.00 0.00 0.00 0.00

South Americas unit 0.00 0.00 0.00 0.00

Asia unit 146 146 146 346

Other key countries unit 0.00 0.00 0.00 0.00

Total staff costs $M -3.20 -3.26 -3.33 -8.05

Wages and salaries $M -3.20 -3.26 -3.33 -8.05

of which social security contributions $M

Equity linked payments $M

Pension related costs $M 0.00 0.00 0.00

12/17A 12/18E 12/19E 12/20E

Total sales $M 196 207 228 251

O/w organic growth (%) % 0.00 0.00 0.00 0.00

Cement $M 190 197 218 223

Sands and Aggregates $M 2.67 2.93 3.29 3.68

Steel $M 19.7 23.0 25.2 29.6

Basalt $M 1.72 1.83 1.95 2.09

Other $M -17.5 -18.4 -20.3 -7.49

12/17A 12/18E 12/19E 12/20E

Other profit breakdown Analysis Analysis

Cement $M 29.7 29.0 36.4 36.8

Sands and Aggregates $M 1.02 1.13 1.28 1.45

Steel $M 1.35 1.70 2.11 3.07

Basalt $M 0.26 0.28 0.32 0.37

Other/cancellations $M -17.5 -18.4 -20.3 -7.49

Total $M 14.9 (1) 13.7 (1) 19.8 (1) 34.2 (1)

Other profit breakdown Analysis margin % 7.59 6.61 8.68 13.6

12/17A 12/18E 12/19E 12/20E

Palestine % 100 100

Other % 0.00 0.00

Staffing Analytics

Divisional Breakdown Of Revenues

Divisional Breakdown Of Earnings 1. Gross Profit

Revenue Breakdown By Country



Financials


12/17A 12/18E 12/19E 12/20E

ROCE (NOPAT+lease exp.*(1-tax))/(net) cap employed adjusted % 5.55 3.35 4.59 6.31

CFROIC % -29.4 -21.6 -22.7 -2.83

Goodwill $M 25.4 25.4 25.4 25.4

Accumulated goodwill amortisation $M 0.00 0.00 0.00 0.00

All intangible assets $M 0.00 0.00 0.00 0.00

Accumulated intangible amortisation $M 0.00 0.00 0.00 0.00

Financial hedges (LT derivatives) $M 0.00 0.00 0.00 0.00

Capitalised R&D $M 0.00 0.00 0.00 0.00

PV of non-capitalised lease obligations $M 0.00 0.00 0.00 0.00

Other fixed assets $M 25.5 64.8 116 128

Accumulated depreciation $M 1.83 3.67 6.08 11.1

WCR $M 54.1 53.8 59.5 67.2

Other assets $M 7.75 12.1 13.4 15.1

Unrecognised actuarial losses/(gains) $M 0.00 0.00 0.00 0.00

Capital employed after deprec. (Invested capital) $M 113 156 214 235

Capital employed before depreciation $M 115 160 220 246

12/17A 12/18E 12/19E 12/20E

Cement $M

Sands and Aggregates $M

Steel $M

Basalt $M

Other $M 113 156 214 235

Total capital employed $M 113 156 214 235

ROCE/CFROIC/Capital Invested

Divisional Breakdown Of Capital



Financials


12/17A 12/18E 12/19E 12/20E

Pension ratio % 0.75 1.40 1.98 2.36


Total benefits provisions $M 0.64 1.24 1.84 2.44

of which funded pensions $M 0.64 1.24 1.84 2.44

of which unfunded pensions $M 0.00 0.00 0.00 0.00

of which benefits / health care $M 0.00 0.00 0.00

Unrecognised actuarial (gains)/losses $M 0.00 0.00 0.00 0.00

Company discount rate % 0.00 0.00 0.00 0.00

Normalised recomputed discount rate % 2.50

Company future salary increase % 0.00 0.00 0.00 0.00

Normalised recomputed future salary increase % 2.00

Company expected rate of return on plan assets % 0.00 0.00 0.00 0.00

Normalised recomputed expd rate of return on plan assets % 0.00

Funded : Impact of actuarial assumptions $M 0.00

Unfunded : Impact of actuarial assumptions $M 0.00

12/17A 12/18E 12/19E 12/20E

US exposure % 0.00 0.00 0.00 0.00

UK exposure % 0.00 0.00 0.00 0.00

Euro exposure % 0.00 0.00 0.00 0.00

Nordic countries % 0.00 0.00 0.00 0.00

Switzerland % 0.00 0.00 0.00 0.00

Other % 100 100 100 100

Total % 100 100 100 100

12/17A 12/18E 12/19E 12/20E

Funded status surplus / (deficit) $M 0.00 0.00 0.00 0.00

Unfunded status surplus / (deficit) $M 0.00 0.00 0.00 0.00

Total surplus / (deficit) $M 0.00 0.00 0.00 0.00

Total unrecognised actuarial (gains)/losses $M 0.00 0.00 0.00 0.00

Provision (B/S) on funded pension $M 0.64 1.24 1.84 2.44

Provision (B/S) on unfunded pension $M 0.00 0.00 0.00 0.00

Other benefits (health care) provision $M 0.00 0.00 0.00

Total benefit provisions $M 0.64 1.24 1.84 2.44

12/17A 12/18E 12/19E 12/20E

Funded obligations periodic costs $M 0.00 0.00 0.00 0.00

Unfunded obligations periodic costs $M 0.00 0.00 0.00 0.00

Total periodic costs $M 0.00 0.00 0.00 0.00

of which incl. in labour costs $M 0.00 0.00 0.00 0.00

of which incl. in interest expenses $M 0.00 0.00 0.00 0.00

Sanad Construction Resources’ 2017 consolidated headcount totalled 146 employees, almost half of them (70 employees) are part of the parent’s company staff. Bulk Express is Sanad Group’s second largest employer (42 employees). The women’s presence rate in the Sanad group’s staff is at 15% and 46% student-teacher ratio. The cement mill is expected to provide about 1,500 job opportunities including 500 direct ones and more than 1,000 indirect ones.

Pension matters

Summary Of Pension Risks

Geographic Breakdown Of Pension Liabilities

Balance Sheet Implications

P&L Implications



Pension Risks


12/17A 12/18E 12/19E 12/20E

Balance beginning of period $M 0.00 0.00 0.00 0.00

Current service cost $M 0.00 0.00 0.00

Interest expense $M 0.00 0.00 0.00

Employees' contributions $M

Impact of change in actuarial assumptions $M 0.00 0.00 0.00

of which impact of change in discount rate $M 0.00

of which impact of change in salary increase $M 0.00

Changes to scope of consolidation $M

Currency translation effects $M

Pension payments $M

Other $M

Year end obligation $M 0.00 0.00 0.00 0.00

12/17A 12/18E 12/19E 12/20E

Value at beginning $M 0.00 0.00 0.00

Company expected return on plan assets $M 0.00 0.00 0.00

Actuarial gain /(loss) $M 0.00 0.00 0.00

Employer's contribution $M 0.00 0.00 0.00

Employees' contributions $M 0.00 0.00 0.00 0.00



Pension payments $M 0.00 0.00 0.00 0.00

Other $M

Value end of period $M 0.00 0.00 0.00 0.00

Actual and normalised future return on plan assets $M 0.00 0.00 0.00 0.00

12/17A 12/18E 12/19E 12/20E

Balance beginning of period $M 0.00 0.00 0.00 0.00

Current service cost $M 0.00 0.00 0.00

Interest expense $M 0.00 0.00 0.00

Employees' contributions $M

Impact of change in actuarial assumptions $M 0.00 0.00 0.00

of which Impact of change in discount rate $M 0.00

of which Impact of change in salary increase $M 0.00



Pension payments $M

Other $M

Year end obligation $M 0.00 0.00 0.00 0.00

Funded Obligations

Plan Assets

Unfunded Obligations



Pension Risks


Sanad Construction Resources’ governance is characterised by the split of the two main roles: the Chairman and the CEO. The Chairman of the Board is the PIF representative, as its largest shareholder. The Board is dominated by PIF representatives. The women’s presence is limited to only one member. It is worth to note that Sanad’s governance body includes three committees:

(1) Senior Executive Committee;(2) Human Resources Committee; and(3) Audit, Governance & Risk Management Committee.

Name Function Birth date Date in Date out Compensation, in k$ (year) Cash Equity linked

Louai KAWAS M CEO 2016 (2017) (2017)

Fadi NABHAN M CFO 2016 (2017) (2017)

Tamer NASSER M COO 2016 (2017) (2017)

Hussein YASSIN M CCO 2016 (2017) (2017)

Name Indep. Function Completion of current mandate

Birth date Date in Date out

Fees / indemnity, in k$ (year)

Value of holding, in k$ (year)

Mohamed MUSTAFA M President/Chairman of th... 2020 2016 (2017) (2017)

Mohammed ABU RAMADAN M Member 2020 2016 (2017) (2017)

Lana ABU-HIJLEH F Member 2020 2016 (2017) (2017)

Tarek AGGAD M Member 2020 1971 2016 (2017) (2017)

Maher AL-MASRI M Member 2020 2016 (2017) (2017)

Nabil A-SARRAF M Member 2020 2016 (2017) (2017)

Samer KHOURY M Member 2020 2016 (2017) (2017)

Mohamed NASR M Member 2020 2016 (2017) (2017)

Mazen SINOKROT M Member 2020 2016 (2017) (2017)

Governance & Management

Yes / No Weighting One share, one vote 25%

Chairman vs. Executive split 15%

Chairman not ex executive 5%

Independent directors equals or above 50% of total directors 10% Full disclosure on mgt pay (performance related bonuses, pensions and non financial benefits) 10%

Disclosure of performance anchor for bonus trigger 10%

Compensation committee reporting to board of directors 10%

Straightforward, clean by-laws 15%

Governance score 70 100%

Governance parameters Existing committees

Audit / Governance Committee

Compensation committee

Financial Statements Committee

Litigation Committee

Nomination Committee

Safety committee

SRI / Environment

Management

Board of Directors





Accidents at work25% Of H.R. Score

Human resources development35% Of H.R. Score

Pay20% Of H.R. Score

Job satisfaction10% Of H.R. Score

Internal communication10% Of H.R. Score

Yes / No Rating Accidents at work 25% 25/100

Set targets for work safety on all group sites? 40% 10/100

Are accidents at work declining? 60% 15/100

Human resources development 35% 35/100

Are competences required to meet medium term targets identified? 10% 4/100

Is there a medium term (2 to 5 years) recruitment plan? 10% 4/100

Is there a training strategy tuned to the company objectives? 10% 4/100

Are employees trained for tomorrow's objectives? 10% 4/100

Can all employees have access to training? 10% 4/100

Has the corporate avoided large restructuring lay-offs over the last year to date? 10% 4/100

Have key competences stayed? 10% 4/100

Are managers given managerial objectives? 10% 4/100

If yes, are managerial results a deciding factor when assessing compensation level? 10% 4/100

Is mobility encouraged between operating units of the group? 10% 4/100

Pay 20% 20/100

Is there a compensation committee? 30% 6/100

Is employees' performance combining group performance AND individual performance? 70% 14/100

Job satisfaction 10% 3/100

Is there a measure of job satisfaction? 33% 0/100

Can anyone participate ? 34% 0/100

Are there action plans to prop up employees' morale? 33% 3/100

Internal communication 10% 0/100

Are strategy and objectives made available to every employee? 100% 0/100

Human Ressources score: 83/100

Human Resources

HR Breakdown

HR Score

H.R. Score : 8.3/10 Building Prod. & Materials Sanad





http://www.alphamena.org/Secure/Sector.aspx?sectorCurrentId=02119447-c505-dd11-b21f-001d920fd6a3

Momentum analysis consists in evaluating the stock market trend of a given financial instrument, based on the analysis of its trading flows.The main indicators used in our momentum tool are simple moving averages over three time frames: short term (20 trading days), medium term (50 days) and long term (150 days). The positioning of these moving averages relative to each other gives us the direction of the flows over these time frames. For example, if the short and medium-term moving averages are above the long-term moving average, this suggests an uptrend which will need to be confirmed. Attention is also paid to the latest stock price relative to the three moving averages (advance indicator) as well as to the trend in these three moving averages - downtrend, neutral, uptrend - which is more of a lagging indicator. The trend indications derived from the flows through moving averages and stock prices must be confirmed against trading volumes in order to confirm the signal. This is provided by a calculation based on the average increase in volumes over ten weeks together with a buy/sell volume ratio.

: Strong momentum corresponding to a continuous and overall positive moving average trend confirmed by volumes

: Relatively good momentum corresponding to a positively-oriented moving average, but offset by an overbought pattern or lack of confirmation

from volumes

: Relatively unfavorable momentum with a neutral or negative moving average trend, but offset by an oversold pattern or lack of confirmation from

volumes

: Strongly negative momentum corresponding to a continuous and overall negative moving average trend confirmed by volumes

Momentum



Graphics


Moving Average MACD & Volume



Graphics


€/$ sensitivity

Sector Building Prod. & Materials



Graphics


Methodology




Fundamental Opinion

It is implicit that recommendations are made in good faith but should not be regarded as the sole source of advice.

Recommendations are geared to a “value” approach.

Valuations are computed from the point of view of a secondary market minority holder looking at a medium term (say 6 months) performance.

Valuation tools are built around the concepts of transparency, all underlying figures are accessible, and consistency, same methodology whichever the stock, allowing for differences in nature between financial and non financial stocks. A stock with a target price below its current price should not and will not be regarded as an Add or a Buy.

Recommendations are based on target prices with no allowance for dividend returns. The thresholds for the four recommendation levels may change from time to time depending on market conditions. Thresholds are defined as follows, ASSUMING long risk free rates remain in the 2-5% region.

RecommendationLow Volatility

10 < VIX index < 30 Normal Volatility

15 < VIX index < 35High Volatility 35 < VIX index

Buy More than 15% upside More than 20% upside More than 30% upside

Add From 5% to 15% From 5% to 20% From 10% to 30%

Reduce From -10% to 5% From -10% to 5% From -10% to 10%

Sell Below -10% Below -10% Below -10%

There is deliberately no “neutral” recommendation. The principle is that there is no point investing in equities if the return is not at least the risk free rate (and the dividend yield which again is not allowed for).

Although recommendations are automated (a function of the target price whenever a new equity research report is released), the management of AlphaMena intends to maintain global consistency within its universe coverage and may, from time to time, decide to change global parameters which may affect the level of recommendation definitions and /or the distribution of recommendations within the four levels above. For instance, lowering the risk premium in a gloomy context may increase the proportion of positive recommendations.



Methodology


Valuation

Valuation processes have been organized around transparency and consistency as primary objectives.

Stocks belong to different categories that recognise their main operating features : Banks, Insurers and Non Financials.

Within those three universes, the valuation techniques are the same and in relation to the financial data available.

The weighting given to individual valuation techniques is managed centrally and may be changed from time to time. As a rule, all stocks of a similar profile are valued using equivalent weighting of the various valuation techniques. This is for obvious consistency reasons.

Within the very large universe of Non Financials, there are in effect 4 sub-categories of weightings to cater for subsets: 1) 'Mainstream' stocks; 2) 'Holding companies' where the stress is on NAV measures; 3) 'Growth' companies where the stress is on peer based valuations; 4) 'Loss making sectors' where peers review is essentially pointing nowhere (ex: Bio techs). The bulk of the valuation is then built on DCF and NAV, in effect pushing back the time horizon.

Valuation IssueNormal

industrialsGrowth

industrialsHolding

companyLoss

runners Bank Insurers

DCF 35% 35% 10% 40% 0% 0%

NAV 20% 20% 55% 40% 25% 15%

PE 10% 10% 10% 5% 10% 20%

EV/EBITDA 20% 20% 0% 5% 0% 0%

Yield 10% 10% 20% 5% 15% 15%

P/Book 5% 5% 5% 5% 15% 10%

Banks' instrinsic method 0% 0% 0% 0% 25% 0%

Embedded Value 0% 0% 0% 0% 0% 40%

Mkt Cap/Gross Operating Profit 0% 0% 0% 0% 10% 0%



Methodology


sanad · 2020-01-13 · sanad is leveraging its leading market position, passing on nesher’s...

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