Below are the key highlights of the Saudi Tadawul Group’s Q2 22 earnings call. I have attached our result analysis and the company’s presentation for your reference.
Revenues came in at SAR298mn, down 4.9% yoy (+1.4% qoq). Of the total, trading revenues (c66%) stood at SAR198mn, down 14.8% yoy (flat qoq) while non-trading revenues came in at SAR100mn, up 23.3% yoy (+4.3% qoq).
The new fee structure contributed SAR19.8mn to the total revenues in Q2 22.
Gross profit stood at SAR197mn, declining 14.8% yoy (-4.6% qoq).
Operating income declined 21.7% yoy (-10.5% qoq) to SAR138mn, reflecting an EBIT margin of 46.2% (vs 56.1% in Q2 21).
EBITDA reached SAR155mn, down 18.8% yoy (-6.7% qoq) and reflecting an EBITDA margin of 52.1% vs 61.0% and 56.6% in Q2 21 and Q1 22, respectively.
Investment income increased 149% yoy (+45% qoq) reaching SAR14.4mn, driven by 1) higher money market yields on interest rate hikes and 2) interest from cash collateral from clearing members that became part of investment income starting from April 22. The Investment portfolio increased 10% yoy to SAR2.56bn, of which 97% was allocated to liquid money market funds.
Net income came in at SAR138mn, down 23.9% yoy (-2.1% qoq).
Annualized ROE stood at 18.0% in Q2 22 vs 22.2% and 17.8% in Q2 21 and Q1 22 respectively due to lower net income.
Total assets and total equity stood at SAR7.54bn ( + 126% yoy, +34.4% qoq) and SAR3.01bn (+4.7% yoy, -6.9% qoq), respectively.
Capex increased 104% yoy to SAR32.4mn in H1 22 , of which SAR27.1mn was incurred in Q2 22. The increase is due to PTTP phase 1 related capex.
Change in working capital increased 41% yoy to SAR66.5mn in H1 22, as a result of higher current liabilities related to balances due to CMA.
FCF decreased 14.0% yoy to reach SAR313mn in H1 22 due to lower EBITDA.
The Capital Markets segment revenue came in at SAR116mn (-14.2% yoy). Of this, trading fees stood at SAR89mn (-23.6% yoy) driven by the normalization of trading values (-21.6% yoy), while listing fees reached SAR27mn (+46.2% yoy) due to an increase in the number and size of listings.
Data and technology fees stood at SAR22mn, down 6.1% yoy due to lower revenue from market information services.
Post trade fees came in at SAR160mn, up 3.4% yoy driven by the new fee structure which was partially offset by normalization of trading values.
Total equity market capitalization increased 17.9% yoy to reach SAR11.5bn at the end of Q2 22.
ADTV of the Main and Nomu markets reached SAR8.2bn in Q2 22 ( -3% qoq) and SAR8.4bn for H1 22 (-21.9% yoy).
The number of listed companies on the Main and Nomu market increased to 215 (vs 203 in Q2 21) and 31 (vs 7 in Q2 21), resulting in a total of 246 companies (vs 210 in Q2 21).
A total of 25 IPOs new were completed in H1 22, of which 8 were on the main market and 17 were on the Nomu market. This resulted in a total of SAR27bn equity capital raised in H1 22.
The number of listed Bond & Sukuk securities increased to 83 in Q2 22 vs 73 in Q2 21.
The number of ETFs and CEFs increased to 9 in Q2 22 vs 7 in Q2 21.
The management believes that the successful completion of the PTTP enhancements in April 2022, will provide investors with more investment opportunities and access to a diverse range of products.
The Sharia Advisory committee established in April 2022 aims to create a unified Sharia- compliant rulebook to oversee and approve Shariah- complaint listed companies.
In June 22, the Saudi Exchange announced its decision to launch Single Stock Futures contracts (the 2nd derivative product on the exchange) starting 4 July 22. The management clarified that the single stock futures fees is 2.5bps of the notional value of the contract traded, of which 1.8bps is for the exchange and 0.7bps is for the regulator.
The REPO clearing service (for short term borrowing) launched by Muqassa aims to facilitate access to liquidity for market participants, reduce risk and increase transparency and make a shift from unsecured to secured lending at lower rates.
The management believe that Edaa’s linkage to Euroclear in May 22 will provide international investors with an additional channel to access the Saudi sukuk and bond market.
The listing momentum is mainly driven by the positive sentiment in the local market.
The management anticipates ADTVs of SAR7-8bn in 2022f (vs SAR7.1bn earlier) due to a healthy pipeline of IPOs and strong fundamentals of the Saudi economy.
STG will continue to diversify its revenues with the focus currently on 1) Derivatives- where it plans to launch more single stock futures and single stock options by the end of the year, these need to be accepted from the Shariah perspective, 2) Cross listing of regional companies- expect a few companies to cross list by the end of the year.
The management guided for a high teen % increase in opex in 2022 and a EBITDA margin in the range of 55-60%.
The management affirmed that the hiring plan is still on target, however headcounts targets for 2022 may be pushed to Q1-Q2 2023. The current headcount is 480.
STG is considering portfolio diversification of its investment portfolio (currently majority is in liquid money market funds).
The company is keen to explore M&A possibilities in Data technology.
Post the launch of its Co-location services, Wamid continues to grow its client base exceeding targets. The second phase is now open to both trading and non-trading customers enabling customers to reduce latency.
Out of the total Data center capacity, 50% is for STG itself, while the balance 50% will be rented out for Co-location. Out of the Co-location capacity, 50% is already contracted. The management expects 60% to be contracted by 2022f and 100% to be contracted by the end of 2023f -beginning of 2024f.
In 2022f and 2023f, the management expects a SAR8mn reduction in CMA fees (of the total SAR130mn annual expense).
STG is keen to work with NOMU listed companies to enable their transition to the Main market. The typical timeline for the upgrade is 24 months.
The management affirmed their previous guidance of total capex of SAR480-500mn. Phase 2 of the capex plan is scheduled for 2023-24f. The head office fit out is expected next year and the regional data services set up is also expected early next year.