Introduction - Overview of Middle East Specialized Cables Company (MESC)

Middle East Specialized Cables Company, along with its subsidiaries, produces and sells a variety of cables in Saudi Arabia and the UAE. Their offerings include fiber optic cables, steel, copper, and aluminum insulated wires. They provide specialized instrumentation and process cables for the oil, gas, and petrochemical sectors, as well as automation and marine industries.

Their product range also features building wires for new constructions, power and control cables for industrial use, and data communication cables like coaxial and LAN. Additionally, they manufacture PVC compounds for insulation, flexible cables for diverse applications, fire cables for alarm systems, irrigation cables for commercial use, and bare copper for electrical systems.

Established in 1992, the company is headquartered in Riyadh, Saudi Arabia.

Peer Companies and their respective Market Capitalization

1. Riyadh Cables (Tadawul 4142) – 15.93 B SAR
2. EIC (Tadawul 1303) – 7.4 B SAR
3. Saudi Cable (Tadawul 2110) – 538 M SAR
4. Alomran (Tadawul 4141) – 464 M SAR

Technical Analysis - Is it the right time to take this trade?

• A close look at the historical chart shows that after hitting a peak of nearly SAR 170 in June 2008, the stock struggled and dropped to SAR 40.
• It briefly recovered to SAR 70 but then dropped below SAR 40 again.
• The stock found support at SAR 20 and stayed in a long consolidation phase.
• In February 2015, it tried to break the resistance at SAR 40 but failed and then plummeted to SAR 8.
• Now, after nearly 14 years of consolidation, the stock is trading just below its resistance level, with expectations of finally breaking through.

Relative Strength Analysis

• The chart distinctly shows that MESC has significantly surpassed the Tadawul all-share index, boasting an impressive annual return of 112%.

Fundamental Analysis - How well is the company performing?

A. Revenue & Profit Analysis

1. Year-on-year

• In the fiscal year 2023, the company achieved remarkable financial success, boasting a 14% year-on-year revenue growth that propelled its total revenue to an impressive 926.9 million SAR, up from 814.4 million SAR in FY22.
• During the same timeframe, EBITDA experienced significant growth, climbing to 94.2 million SAR from 43.3 million SAR.
• As of FY23, the company proudly holds an EBITDA margin of 10.2%.
• Additionally, the basic earnings per share (EPS) for the trailing twelve months surged to 1.80 SAR, marking an extraordinary 189% increase compared to the previous year.

2. Quarter-on-quarter

• For the quarter ending June 2024, the company reported a revenue of 249.9 million SAR, a decline from the record-breaking 291.3 million SAR achieved in March. Nevertheless, this figure reflects a robust 16% growth compared to the 215.9 million SAR earned in the same quarter last year.
• In terms of EBITDA, there was a decrease to 30.6 million SAR in June, down from 36.0 million SAR in March 2024. However, it is worth noting that this is an increase from the 22.4 million SAR reported in the same quarter last year.

B. Stock Valuation Analysis: Is the Stock Price Right?

1. P/E Ratio (Price-to-Earnings)

• This ratio compares the company's stock price to its earnings per share.
• The stock showcases an attractive valuation with a Price-To-Earnings Ratio of 22.3x, notably below the peer average of 358.7x.

2. P/B Ratio (Price-to-Book)

• This ratio compares the company's stock price to its book value.
• At a P/B ratio of 3.8x, this stock is considerably undervalued relative to the peer average of 6.1x.

C. Cash Flow Analysis

• In fiscal year 2023, cash flow from operations experienced significant growth, increasing to 81.6 million SAR, in contrast to a deficit of 43.3 million SAR in fiscal year 2022.

D. Debt Analysis

• As of June 2024, MESC's total debt stands at 53.4 million SAR, leading to a debt-to-equity ratio of 0.12. This marks a significant improvement, as the ratio has decreased from 0.29 over the last five years.

E. Top Shareholder

• Mansour Kaaki - Former Board Member, Middle East Specialized Cables
  • Share Held: 6.406%

Conclusion

We give a “BUY” rating to Middle East Specialized Cables. Upon examining the different technical and financial metrics, we are confident that MESC is positioned for significant growth in near future.

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