• Earnings surge 77% Q-o-Q as operations improve across the board Sahara reported its 2Q16 results yesterday with earnings surging +77% Q-o-Q to SAR96mn, broadly in line with our estimate (+5%), but well above Bloomberg consensus (+46%). The significant Q-o-Q rally was driven by an improvement across its subsidiaries including: i) higher volumes and margins at Al Waha (75%-owned), which saw its margins expand on higher spreads (+18%); ii) better prices and volumes at SEPC (24.4%); iii) a decline in losses at SAAC (43.2%) on higher prices as well as a positive impact from the commercial start-up of the butanol project; and iv) improved prices and sales at SAMAPCO (50%), with the company achieving the highest level of production in its history during this quarter.
• Al Waha drives marginal operational beat, investment income misses 2Q revenue of SAR449mn was up 7% Q-o-Q (+102% Y-o-Y) and was in line with our forecast. EBITDA jumped 41% Q-o-Q to SAR159mn, 8% above our forecast on better-than-expected margins at Al Waha. EBITDA margins surged to 35.4%, much higher than the 26.9% reported in 1Q16 and better than our 32.6% forecast. Other income (includes investment income form SEPC, SAAC and SAMAPCO) came in at SAR47mn, up 47% Q-o-Q, but 14% below our expectations; as full financials are not yet available its not clear which subsidiary drove the miss.
• Strong results priced in at current levels, maintain Neutral Things finally appear to be coming together for Sahara, as this was the fourth consecutive quarter of strong operations at Al Waha, marking the first time the company has managed to operate the plant with no issues for a full year and as losses at the company’s new projects have dwindled. That said, 2Q is likely to be the best quarter of the year and even annualising the 2Q results would yield a PE of 13x, implying fundamentals are more than priced in at current levels.

Youssef Husseini