Doha – Qatar: MubasherTrade Research on Sunday announced reducing its price target (PT) for Qatar-listed Zad Holding by 21% to QAR 95 per share, from QAR 121.
Last week, seven Arab countries announced severing diplomatic ties with Qatar, accusing it of supporting terrorism. The coalition included Saudi Arabia, the UAE, Egypt, Bahrain, Libya, and Yemen, with others following suit.
The countries said they will break off all land, air and sea links with Qatar as well as “eject Qatar’s diplomats from their territories,” MubasherTrade Research said, highlighting that such decisions “will have a devastating impact on the country’s economic activity if prolonged.”
Accordingly, this will negatively impact Zad Holding whose revenues are generated through three core segments, namely: trading and manufacturing of consumer products, contracting and real estate management, and logistics services.
“[MubasherTrade Research] believe[s] the latter two segments (contracting and logistics) will be affected the most, followed by the consumer segment. We lower our forecasts for Zad's total revenues by 20% in 2017e to QAR1.05 billion, instead of QAR1.32 billion in our previous assumptions.”
Accordingly, the research firm now forecasts Zad's revenues to fall at a 5-year compound annual growth rate (CAGR) of -0.1% over 2016-2021e vs. a CAGR of +4.7% in their old estimates.
Commenting on the outlook of Zad’s contracting and logistics segments, the research firm says they will be “the most exposed” owing to the projected delay in awarded works and deals.
“We expect this will be due to the lack of building materials supply which Qatar secures from Saudi Arabia and the UAE. This logistics issue might be solved by shipping required materials through Iran, but it will probably take longer time and have a higher cost,” the research firm said in a note.
It is also expected that demand for rentals and accordingly rental rates may fall owing to the expected drop in tourism activities triggered following the political rift.
“This is a double-whammy as lower economic activities would undermine the contracting segment (on reduced availability of building materials) and in turn negatively affect the logistics segment (as demand falters as a result),” Mubasher Trade Research stated.
Accordingly, the research firm cut its revenue forecast for the contracting and logistics segments by 31% each to QAR 192 million and QAR 118 million, respectively.
“We note that Zad's stock has proven to be resilient so far since the market sell-off, dropping by only 1.07% versus a drop of 8.6% for the market since the crisis began. We will monitor the political situation as it evolves and will update our view accordingly,” the note concluded.
