Equity Analysis /
Saudi Arabia

Seera Group: Careem proceeds to offset COVID-19

  • COVID-19; travel industry impacted the most; Careem proceeds to offset COVID-19

  • Uncertainty in 2020f, focus on the long-term

  • Maintain Overweight rating with a price target of SAR17.7

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
11 May 2020
Published bySNB Capital

We maintain our Overweight rating on Altayyar (Seera) with a revised PT of SAR17.7. Although COVID-19 is a major short-term headwind, it will be mitigated by proceeds of Careem sale. The long-term outlook for Seera is positive, supported by the strong potential of the Saudi tourism sector and the growth in the number of pilgrims. The stock is trading at P/B of 0.6x, which we believe is not justified.

COVID-19; travel industry impacted the most: The rapid spread of COVID19 has had a severe impact on global travel and tourism sectors. Precautionary measures, taken across the world, have severely impacted flight operations. IATA expects airlines revenues to decline by 48% in 2020f, resulting in losses of US$314bn. There is a high probability of a further decline in profitability if travel restrictions continue. Moreover, the Saudi Minister of Tourism said that the sector earnings are expected to decline 35%-45% yoy. We believe the global travel sector might see a slow recovery in demand, as the global economy enters a recession as a result of COVID-19, with several airlines expecting a recovery between 2021 and 2023. 

Uncertainty in 2020f, focus on the long-term: As COVID-19 has been spreading globally, Saudi suspended international flights from 15 March 2020 and domestic flights from 21 March 2020. As revenues are directly linked to travel and tourism activities, we highlight that estimating 2020f profitability is highly subjective, being largely dependent on governments easing of measures to control the spread of the pandemic. We initially estimate a decline of 48.7% yoy in Seera’s revenues, which could be revised further either way. Therefore, we turn our focus to the period beyond 2020f, as we anticipate travel and tourism activities to normalise in 2021f. We highlight that the recovery period may be longer, depending on how the situation evolves. 

Careem proceeds to offset COVID-19: In 2019, Uber acquired Careem for US$3.1bn (SAR11.6bn). The transaction was concluded in Q1 20 and the proceeds are expected to be paid in two tranches: 75% in 2020f and 25% in 2021f. As Seera owns a stake of 14.7% in Careem, it is expected to record a capital gain of SAR1.7bn from this transaction with cSAR1.28bn to be received in 2020f and cSAR425mn in 2021f. We expect Seera to use the proceeds to reduce its debt of SAR1.15bn (mainly its short-term debt of SAR682mn), improve its online and tourism sector offerings and distribute dividends.