“Al-Ahly Capital”: “Luberef” will achieve this level of profits until 2026, and the dividends will remain constant during the next 5 years. This is our recommendation and the target price for the share

“Al-Ahly Capital”: “Luberef” will achieve this level of profits until 2026, and the dividends will remain constant during the next 5 years. This is our recommendation and the target price for the share
“Al-Ahly Capital”: “Luberef” will achieve this level of profits until 2026, and the dividends will remain constant during the next 5 years. This is our recommendation and the target price for the share
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Al-Ahly Capital revealed its expectations that Luberef would record average profits during the period from 2022-2026 amounting to 1.3 billion riyals, adding that the company’s production capacity is 1.3 million metric tons of base oils from the first and second groups while importing and reselling the third group, and it is the second largest company In the Middle East and North Africa region, and its facilities in Yanbu are among the 10 largest factories globally, stating that operational excellence, wide product range and consistent raw materials are its main strengths.

NCB Capital expects Luberef to post strong EBITDA in the future, given strong utilization expectations and flexible margins. In the period from 2022 to 2026 AD, the average EBITDA is expected to reach 1.8 billion riyals, resulting in an average net income of 1.3 billion riyals. The dividend is expected to remain constant at 85% over the next five years. This translates to a dividend yield of 6.8% for 2023.

NCB Capital recommended increasing the weight of Luberef’s share with a target price of 116.4 riyals per share, noting that the unique product mix, operational excellence, strong margins and consistent raw materials are the main strengths of Luberef, indicating that the stock is trading at a profit multiple of 12.5 times compared to the average of its peers of 12.5 times. 15 times.

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According to “National Capital”, Luberef owns a unique producer of pure base oil with a long-term raw materials agreement with Saudi Aramco, and it has two facilities in Jeddah and Yanbu with a capacity of 1.3 million metric tons to produce base oils for the first and second groups. Production was 1.17 million metric tons in 2021 (0.89 million metric tons in 2020), reflecting a utilization rate of 87% in 2021 (70% in 2019-2020) which is above the peer average of 52.8%. To capitalize on growth opportunities in Block C, Luberef will start the Yanbu Growth II project (capital $150m-$200m), which is expected to upgrade the existing facility to deliver Block C (capacity of 175,000 metric tons). Operations are scheduled to begin in 2025 AD while the Jeddah facility will be closed by 2026 AD.

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The rapid recovery after COVID-19 resulted in a large deficit of refined products in the market. This led refiners to prioritize the production of other refined products instead of base oil, causing shortages, and these factors are expected to keep the market tight in the coming period. Accordingly, it assumed that margins would remain high, above the long-term average in 2022 and 2023, before returning to the long-term rate of $489 in 2024 and 2025, adding that in the long term it is likely that the company’s move towards the third group should enable it to achieve prices Better compared to the first group. Thus, the assumption for margin has been increased to $504 in 2026.

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