Mega Projects And Renewable Initiatives Will Secure Future Value

Key Takeaways

• High backlog, capacity expansion, and focus on advanced cable solutions ensure strong revenue visibility, superior margins, and increased resilience amid infrastructure growth and modernization.
  
• Export growth, diversification toward high-margin products, and operational efficiencies reduce regional dependence and enhance opportunities for sustained top-line growth and capital returns.
  
• Heavy reliance on regional megaprojects, rising competition, credit risks, excess capacity, and volatility in input costs collectively threaten sustained profitability and earnings stability.

Catalysts

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

• The group's record-high backlog (SAR 5.7 billion in value and 181,000 tons) reflects ongoing large-scale infrastructure and urbanization projects across Saudi Arabia and the GCC, including giga and mega projects as well as renewable energy initiatives, providing strong near-term revenue visibility and supporting future growth beyond currently implied by the stock price.
  
• Consistently high utilization rates (96% and expected capacity to grow 6–8% year-over-year) and continued investments in capacity expansions and production efficiencies position the company to capitalize on increasing electricity demand and power network upgrades, potentially sustaining higher volumes and improved margins over the medium term.
  
• Expansion into export markets-including Iraq, GCC, and Africa-with a growing share of high-margin transmission and specialty cables strengthens and diversifies the revenue base, reducing regional dependence and boosting top-line growth opportunities not fully factored into current valuation.
  
• The company's ongoing mix shift toward higher-value, technologically advanced, and renewable energy-related cable solutions (with transmission and renewables now comprising 80% of the backlog) points to continued margin expansion potential, as these segments boast higher profitability, positively impacting net margins and earnings.
  
• Leveraging automation, digital transformation, and vertical integration allows the group to weather commodity price fluctuation and operating cost pressures, improving resilience while supporting margin stability and free cash flow generation, which may enable further dividend growth and capital returns underestimated by the market.

Riyadh Cables Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Riyadh Cables Group's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.5% today to 10.4% in 3 years time.
• Analysts expect earnings to reach SAR 1.2 billion (and earnings per share of SAR 7.95) by about August 2028, up from SAR 902.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SAR948 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.2x on those 2028 earnings, up from 22.7x today. This future PE is greater than the current PE for the SA Electrical industry at 21.0x.
• 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 21.04%, as per the Simply Wall St company report.

Riyadh Cables Group Future Earnings Per Share Growth

Risks

• Overreliance on regional infrastructure mega/giga projects and government-driven capital expenditures exposes Riyadh Cables Group to revenue cyclicality and earnings volatility if there are significant delays, scale-backs, or cancellations-especially as some major projects in Saudi Arabia are reported to be under review, which could impact future order flows and growth visibility.
  
• Intensified competition in the Saudi and GCC cable markets-with seven major competitors, including both local and international players-could drive persistent pricing pressures and potential margin compression, jeopardizing net margins and profit growth over the long term.
  
• Escalating impairments (ECL provisions) associated with receivables, particularly from markets like Iraq, highlight heightened credit risk, and while management expects reversals, persistent or growing impairment charges could negatively impact earnings quality and free cash flow if customer payment cycles worsen.
  
• Slower market growth rates in core geographies (e.g., Saudi Arabia's projected ~5% annual growth) coupled with company capacity expansions at rates exceeding market demand could lead to excess capacity or underutilization in the longer term, putting downward pressure on utilization rates and net margins.
  
• High exposure to commodity input costs (e.g., copper and aluminum), combined with an admission that industry margins are closely tied to product mix and operational efficiency, suggests a risk that adverse shifts in input pricing, customer demand, or inability to sustain premium mix could eventually reduce gross profit per ton, impacting both revenue and profitability sustainability.

Valuation

• The analysts have a consensus price target of SAR131.68 for Riyadh Cables Group based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be SAR11.5 billion, earnings will come to SAR1.2 billion, and it would be trading on a PE ratio of 29.2x, assuming you use a discount rate of 21.0%.
  
• Given the current share price of SAR136.6, the analyst price target of SAR131.68 is 3.7% lower. 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.