Strategy Note /
Saudi Arabia

STG - Q3 2022 earnings call summary

  • Revenues came in at SAR257mn, down 2.1% yoy (-13.7% qoq)

  • The new fee structure contributed to an additional revenue of SAR14.5mn in Q3 22

  • EBITDA reached SAR106mn, down 27.1% yoy (-31.7% qoq)

SNB Capital
16 November 2022
Published bySNB Capital

Financial overview

  • Revenues came in at SAR257mn, down 2.1% yoy (-13.7% qoq). Of the total, trading revenues (c57% of the total) stood at SAR147mn, down 9.6% yoy (25.8 % qoq) and non-trading revenues came in at SAR111mn, up 10.0% yoy (+10.1% qoq)

  • The new fee structure contributed to an additional revenue of SAR14.5mn in Q3 22

  • Gross profit stood at SAR146mn, declining 18.3% yoy (-25.8% qoq).

  • Operating expense (ex-D&A) increased to SAR151mn up 29% yoy (+6% qoq) of which salaries and related benefits were SAR75mn up 19% yoy driven by the increase in headcount.

  • Operating income declined 29.6% yoy (-33.3% qoq) to SAR92mn, reflecting an EBIT margin of 35.7% vs 49.6% in Q3 21 and 46.1% in Q2 22.

  • EBITDA reached SAR106mn, down 27.1% yoy (-31.7% qoq) and reflecting an EBITDA margin of 41% vs 55% and 52% in Q3 21 and Q2 22 respectively.

  • Investment income increased 62.0% yoy (-7% qoq) and reached SAR13.3mn driven by 1) higher money market yields with interest rate hikes and 2) interest from cash collateral from clearing members that became part of investment income from April 22. 

  • The Investment portfolio size increased 4% qoq to SAR2.67bn, of which 75% was allocated to time deposits.  98% portfolio is allocated to liquid market funds and time deposits and the management continues to shift the portfolio from money market to term deposits to capture the higher interest rates

  • Net income came in at SAR89mn, down 22.6% yoy (-35.3% qoq).

  • Annualized ROE decreased to 11.5% in Q3 22 due to lower net income, vs 18.0% and 13.9% in Q2 22 and Q3 21 respectively.

  • Total Assets and total equity stood at SAR8.05bn (+ 132% yoy, +6.8% qoq) and SAR3.10bn  (+3.6% yoy, -3.0% qoq)  respectively at the end of Q3 22

  • Capex increased 76% yoy to SAR44.2mn in 9M 22, the increase is due to the PTTP phase 1 and IBM WebSphere application server related capex.

  • Change in working capital increased 26% yoy to SAR19.1mn in 9M 22, mainly due to higher current liabilities driven by increase in accounts payable and accrued liabilities.

  • FCF decreased 22.3% yoy to reach SAR373mn in 9M 22 driven by lower EBITDA because of decrease in groups revenue vs growth in expenditure. The group recorded a strong cash flow conversion exceeding 87%

Operating overview

Segments

  • The Capital Markets segment revenue came in at SAR91mn (down 11.5% yoy). Of this, trading fees came in at SAR67mn (down 18.1%yoy) driven by normalization of trading values (which contracted by 18.7% yoy); while listing fees reached SAR24mn (up 13.9% yoy) due to an increase in the number and size of listings

  • Data and technology fees stood at SAR28mn, up 18.7% yoy driven by market information and Wamid’s co-location service which was activated in Q1 22

  • Post trade fees came in at SAR138mn, up 1.5% yoy driven by the new fee structure and partially offset by normalization of trading values.

Market Performance

  • Total equity market capitalization increased 7.8% yoy to reach SAR10.9bn at the end of 9M 22

  • Total ADTV on the Main and Nomu markets reached SAR6.1bn in Q3 22 ( -18. 8% yoy) and SAR7.7bn in 9M 2022 ( -20.8%yoy)

  • The number of listed companies on the Main and Nomu market increased to 217 (vs 205 in Q3 21) and 38 (vs 12 in Q3 21)  respectively at the end of Q3 22 resulting in a total of 255 companies (vs 217 in Q3 21)

  • A total of 30 IPOs were completed in 9M 2022, of which 10 were on the main market and 20 were on the Nomu market, this resulted in a total of SAR28bn equity capital raised in 9M 22

  • The number of listed Bond & Sukuk securities increased to 77 in Q3 22 vs 74 in Q3 21

  • The number of ETFs and CEFs increased to 9 in Q3 22 vs 7 in Q3 21

Other comments

  • Tadawul launched single stock futures in Q3 22, which is its second derivative product and is in line with the group’s diversification strategy

  • WAMID signed a non-binding agreement to acquire 51% of the issued shares in DirectFN with objectives of  growth and diversification of products and services and also to have an international reach.

  • The management stated that the DirectFN acquisition if materialized will be consolidated as per IFRS guidelines. The management will share details of the expected financial contribution from the acquisition at a later stage

  • The management clarified that Tadawul follows a totally different structure for its commissions in the equity vs debt market and the latter is much cheaper

  • The management clarified that expansion with respect to hiring will be linked to revenue generation in addition to fling in gaps

  • The management stated that Tadawul’s acquisitions will be disciplined, strategy relevant and should be able to generate synergies.

Outlook

  • The management anticipates a significant demand on the equity side over the next 12-18 months

  • Of the total Co-location space, 20%  is leased out contributing SAR10mn, while 20% is already contracted and the management is targeting to close the balance 60% by end of 2023.

  • The management affirmed that the carbon credit market is still in early stages and views it as a mid- long term development

  • The management foresees no risk of declining participation from foreign investors in the regular and IPO market      

  • The management anticipates the 1st Cross listing this year and confirmed that it is in advance stages

  • The management guided that benefits of higher interest rates on time deposits will be seen in the Q4 22 results

  • The management clarified that Data and technology segment growth is sustainable

  • The management anticipates ADTVs in the range of SAR7.2-7.5bn in 2022f

  • The management maintained its expense growth guidance in the high teens in 2022f and said that the hiring plan will continue until Q2 2023 and then stabilize in H2 2023.

  • The management expects a total of 40 IPOs this year in both main and Nomu markets. 15 to18 IPOs have approved between exchange and regulator and a healthy pipeline of over 50 IPOs are under review and awaiting approvals

  • The management is working on developing an attractive market for fixed income and anticipates  more corporate bond issuances in the debt market

  • The management expects direct listing of private placements to support  the debt market. Foreign investors can also participate through Tadawul’s linkage with multiple channels like Euroclear and FTSE