Equity Analysis /
Saudi Arabia

Saudi Tadawul Group: Key changes support the positive outlook

  • New fee structure to drive earnings

  • Volumes remain robust on the back of improving macros

  • Remain Neutral with a PT of SAR184.9

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Vice President, Senior Equity Research Analyst

SNB Capital
7 April 2022
Published by

We remain Neutral on STG with a PT of SAR184.9. We believe the new fee structure is a material change for the company, which will enhance its earnings outlook. Moreover, higher volumes and the introduction of new products, such as single-stock futures, will support profitability going forward. We have increased our earnings estimates by an average of 24% over the next three years and now expect the company to deliver a 3-years (2021-2024f) earnings CAGR of 11.4%. The stocks trades at 2022f P/E of 38.6x, in-line with peer group average P/E of 38.8x.

New fee structure to drive earnings

STG announced that the CMA approved the new fees structure for the services provided by the company’s subsidiaries (the Saudi Exchange, Edaa, and Muqassa) regarding the shares buy and sell commissions, the units of REITs, ETFs, CEFs, and Tradable Rights. Under the new structure, STG’s subsidiaries will cumulatively charge 2.0bps on each transaction side vs 1.8bps previously. The fees restructuring will not impact the current total commission of 15.5bps for the end client. The implementation of the new fees structure started on 03 April 2022 and coincided with the launch of a bundle of enhanced post-trade infrastructure. Based on our calculation, the new structure will increase STG’s revenue by an average of c7.5% over the next 3 years.

Volumes remain robust on the back of improving macros

Contrary to our initial view of normalization of volumes in 2022f, ADTV has remained high. We initially expected that the foreseen hike in interest rates would reduce the attractiveness of the equity market, and hence we assumed ADTV to decline to SAR7.9bn in 2022f vs SAR8.9bn in 2021. However, higher oil prices, which significantly improved the macro environment, and increased inflows from QFIs positively impacted market volumes (ytd ADTV of cSAR8.5bn). Subsequently, we have increased our ADTV assumptions to SAR8.5bn for 2022f and marginally increased the 2023f assumption to SAR9.0bn (previously SAR8.7bn). We have kept the assumption for the subsequent years unchanged.

Earnings to grow at a CAGR of 11.4% over the next three years

Based on the above, we increased our earnings estimates for 2022f-2024f by an average of 24% and now expect the company to deliver an earnings CAGR of 11.4% to reach SAR812mn by 2024f. Moreover, the company has a low recurring capex requirement and minimal working capital need, enabling it to maintain a healthy pay-out of above 60%.

Remain Neutral with a PT of SAR184.9

We remain Neutral on STG with a PT of SAR184.9. STG is an integral pillar and a key enabler of Vision 2030, which we believe is a key value proposition. We believe the new fee structure, higher ADTV, and the introduction of new products will support earnings going forward. The stock trades at 2022f P/E of 38.6x, in-line with peer group average of 38.8x.