logo
2010 logo
2010
Saudi Basic Industries

Portfolio Optimization And Sustainability Initiatives Will Foster Future Competitiveness

AN
Consensus Narrative from 13 Analysts
Published
07 Nov 24
Updated
26 Mar 25
Share
AnalystConsensusTarget's Fair Value
ر.س76.15
16.3% undervalued intrinsic discount
26 Mar
ر.س63.70
Loading
1Y
-23.3%
7D
1.0%

Author's Valuation

ر.س76.1

16.3% undervalued intrinsic discount

Analyst Price Target Fair Value

Key Takeaways

  • SABIC's portfolio optimization and asset divestment strategy aims to enhance capital efficiency and future net margins by investing in high-margin opportunities.
  • Innovation and sustainability initiatives, such as carbon capture and recyclable solar installations, are positioned to bolster SABIC's competitive stance and long-term growth.
  • Overcapacity and weak demand in petrochemicals, along with market volatility, threaten SABIC's revenue growth, net margins, and financial stability.

Catalysts

About Saudi Basic Industries
    Engages in the manufacture, marketing, and distribution of chemicals, polymers, plastics, agri-nutrients, and metal products worldwide.
What are the underlying business or industry changes driving this perspective?
  • SABIC's strategic focus on portfolio optimization and divestment of non-core and underperforming assets, such as the sale of its Alba shares and other assets, is expected to free up capital for investment in higher-margin opportunities and improve capital efficiency, potentially increasing future net margins and net income.
  • The ongoing projects, including the SABIC Fujian Petrochemical Complex, MTBE plant at Petrokemya Jubail, and the expansion at SABIC SK NEXLENE Company, are anticipated to drive revenue growth through increased production capacity and meeting rising demand in specific sectors.
  • SABIC's commitment to innovation and sustainability, evident from advancements such as the world's largest solar installation using fully recyclable materials and the development of innovative materials and processes, is likely to enhance competitive position and support long-term revenue growth.
  • The focus on capturing and utilizing carbon emissions, and potential sequestration developments, could reduce operational costs related to emissions management and enhance SABIC's sustainability credentials, potentially leading to improved net margins.
  • SABIC's robust cash flow generation and disciplined capital expenditure (CapEx) approach ensure sufficient resources are directed to strategic growth projects, which supports future earnings growth through maintained or increased production efficiency and capacity expansion.

Saudi Basic Industries Earnings and Revenue Growth

Saudi Basic Industries Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Saudi Basic Industries's revenue will grow by 3.3% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 1.5% today to 7.5% in 3 years time.
  • Analysts expect earnings to reach SAR 11.6 billion (and earnings per share of SAR 4.48) by about March 2028, up from SAR 2.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SAR14.7 billion in earnings, and the most bearish expecting SAR7.8 billion.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.2x on those 2028 earnings, down from 91.6x today. This future PE is lower than the current PE for the SA Chemicals industry at 50.3x.
  • 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 20.1%, as per the Simply Wall St company report.

Saudi Basic Industries Future Earnings Per Share Growth

Saudi Basic Industries Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Overcapacity and weak demand in the petrochemical industry present ongoing challenges, potentially pressuring SABIC's revenues and EBITDA margins.
  • Declines in average selling prices for certain product lines, despite increased sales volumes, might erode net margins and impact earnings growth.
  • Rationalization and closure of assets, especially in Europe, could incur restructuring costs and affect near-term profitability and cash flow.
  • Lower CapEx guidance suggests possible delays or downsizing in growth projects, which could limit long-term revenue expansion and competitive positioning.
  • Market volatility, especially in regions like Europe, combined with uncertainty in global demand recovery, can result in fluctuating net income and financial instability.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of SAR76.146 for Saudi Basic Industries 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 SAR99.0, and the most bearish reporting a price target of just SAR61.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SAR154.3 billion, earnings will come to SAR11.6 billion, and it would be trading on a PE ratio of 34.2x, assuming you use a discount rate of 20.1%.
  • Given the current share price of SAR64.0, the analyst price target of SAR76.15 is 16.0% higher.
  • 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.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Read more narratives