Sico initiates coverage on nass corporation with an “over-weight” rating
Securities & Investment Company (SICO) has released a detailed report initiating coverage on Nass Corporation, a vertically integrated contracting company in Bahrain, with an “Over-weight” rating and a fair value of BHD 0.638 per share presenting an upside of 42% to its current market price of BHD 0.450 per share.
The 37 page report highlights that Bahrain is currently enjoying a construction boom which is driven by both the public and private sectors, resulting in an impressive flow of projects into the construction market estimated at about USD27.5bn. The strong presence of Nass Corporation in the local market due to its ability to provide integrated solutions for construction projects, backed by its in-house technical expertise, business integration and consistent performance enables it to exploit the existing opportunities. The company is well positioned to achieve monetary as well as qualitative synergies as a result of its operations across the value chain.
The report emphasizes the management’s ability and expertise to capture the potential growth in the industry, with well planned strategies to retain competitive advantage. Nass Corporation works on a multi pronged strategy to expand its core competencies firstly by entering significantly bigger regional markets, currently undergoing a construction boom, to extend its base. Moreover, it forms joint ventures with foreign partners, to acquire sizeable contracts. Its ability to provide turnkey solutions places the company as one of the preferred partners for international contracting companies operating in the region.
The analysis indicates that the company has achieved strong growth in business over the past five years. The average growth in order book from 2002 to 2007 has been more than 50%, moreover, the average size of contracts won by Nass Contracting was BHD4.4mn in 2007 compared to BHD0.7mn in 2002. Nass Corp. currently has about 22 projects in its project book which are expected to be completed during the span of 2-3 years. Nass Corp. also has a loyal client base including the Ministry of Works, The Royal Court, Tabreed and Durrat Al Bahrain.
The coverage on Nass Corporation was initiated with an ‘Over-Weight’ rating based on a fair value of BHD 0.638 per share, offering 42% upside potential from the current price while the attractive dividend yield of 5.3%, limits the downside. The company is trading at a steep discount to the broader Bahrain market with Price to Earnings (PE) multiples of 10.9x and 7.3x based on 2007A and 2008E earnings compared to 12.9x and 11.4x for the broader market. The discount is not justified considering the existing order book and expected earnings growth. The potential trigger to the stock price is expected to be the announcement of another quarter of strong earnings (expected to be next qurater- 1H08), which will give more clarity to the expected strong full year earnings and lower implied valuation multiples.
Securities & Investment Company is an investment bank offering a selective range of services, including asset management, brokerage, corporate finance and market-making, on a regional basis and with a particular emphasis on Bahrain. SICO was incorporated in Bahrain in 1995 and holds a banking license from the Central Bank of Bahrain.
As of December 31, 2007, SICO reported total assets of BD 104.832 million, with shareholders’ equity of BD 42.106 million. SICO’s shares have been listed on the Bahrain Stock Exchange since May 2003. Securities & Investment Company was the first ‘closed’ company to list on the exchange.
SICO’s research and other information on its services and reports is available at: www.sicobahrain.com
