Vision 2030 And Electrification Will Expand Cable Markets

Key Takeaways

• Expansion into higher-margin segments, operational efficiency, and strong export growth position the company for sustained profit growth and resilience against market volatility.
  
• Long-term demand from regional mega projects and technological investments are expected to drive cost advantages, steady cash flow, and future dividend growth.
  
• Heavy dependence on regional markets, exposure to technological disruption, and rising competition threaten long-term growth and profitability amid evolving energy trends and raw material risks.

Catalysts

Manufactures and supplies various types of wires and cables to the power transmission and communication sectors in the Kingdom of Saudi Arabia.

• While analyst consensus acknowledges operational expansion and new capacity as catalysts, the underlying market momentum and Riyadh Cables' ability to maintain utilization rates above 96 percent in both domestic and export markets imply that actual sales growth and top-line revenue could consistently outperform current projections, especially given that capacity is intentionally growing even faster than the addressable market.
  
• Analysts broadly agree that product mix enhancements and entry into higher-margin areas will drive moderate earnings growth, but with Riyadh Cables' record gross profit per ton, ongoing pricing power, sustained high margins in transmission and renewables, and very lean cost structure (G&A and S&D expenses below 3 percent of revenue), there is material upside for further margin expansion and accelerated net profit growth.
  
• Riyadh Cables' rapid export expansion, especially in high-growth regions like Iraq and the wider GCC, is poised to materially reduce earnings cyclicality-providing downside protection to earnings and unlocking new revenue streams, which are not yet fully reflected in consensus forecasts.
  
• The company is set to be a principal beneficiary of long-term electrification and economic transformation agendas in the Middle East, as ongoing mega projects in urbanization, grid modernization, renewables, and national Vision 2030 initiatives provide a multi-year, visible pipeline of demand that supports ongoing earnings growth and operational leverage.
  
• The company's investments in automation, digital transformation, and manufacturing technology are expected to drive structural cost efficiencies and sustainable EBITDA margin improvement, supporting higher free cash flow and further enhancing future dividend capacity.

Riyadh Cables Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Riyadh Cables Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Riyadh Cables Group's revenue will grow by 8.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 9.5% today to 11.0% in 3 years time.
• The bullish analysts expect earnings to reach SAR 1.3 billion (and earnings per share of SAR 8.82) by about August 2028, up from SAR 902.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 29.8x on those 2028 earnings, up from 23.1x today. This future PE is greater than the current PE for the SA Electrical industry at 20.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.05%, as per the Simply Wall St company report.

Riyadh Cables Group Future Earnings Per Share Growth

Risks

• Riyadh Cables Group is heavily reliant on Saudi Arabia, GCC, and Iraq for approximately 95% of revenues, making future revenue and earnings growth highly sensitive to regional infrastructure and construction spending, which in turn depend on volatile oil prices and government budgets.
  
• The company's product portfolio, while comprehensive for the region, remains less diversified than global peers and is still concentrated in traditional grid and transmission cables, exposing long-term sales and net margins to the risk of disruptive technologies such as wireless power transmission and advanced fiber optic solutions.
  
• Over 70% of the current backlog is transmission projects, with only 10% tied to renewable energy; should the global shift toward distributed renewables and less centralized grids accelerate, demand for traditional transmission cables could plateau or decline, directly impacting revenue growth.
  
• Intensifying competition from seven local cable manufacturers and increasing entry from international players in the MENA region puts pressure on Riyadh Cables Group to maintain pricing power, which could erode gross margins and reduce net profits, especially if the company fails to maintain efficiency gains or loses market share.
  
• The company's input costs are tightly linked to copper and aluminum prices, and although management claims effective hedging, long-term trends of resource scarcity, rising global environmental regulations, and potential carbon or recycling compliance costs could squeeze profit margins and depress earnings over time.

Valuation

• The assumed bullish price target for Riyadh Cables Group is SAR149.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Riyadh Cables Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SAR149.0, and the most bearish reporting a price target of just SAR91.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SAR12.0 billion, earnings will come to SAR1.3 billion, and it would be trading on a PE ratio of 29.8x, assuming you use a discount rate of 21.0%.
  
• Given the current share price of SAR139.5, the bullish analyst price target of SAR149.0 is 6.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.