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ADNOC headquarters building. Image courtesy: ADNOC
Citi Research had upgraded Abu Dhabi’s ADNOC Distribution to Buy from Neutral as the one-year share price decline of 20% exposes significant upside potential.
In a note issued on Wednesday, the research firm set a target price of 4.35 dirhams ($1.18) per share.
"We continue to see a 2022-26 EBITDA CAGR of 5% driven by volume growth in the UAE and KSA and continued cost efficiencies. The stock now trades at a 15.4x 2024E PE, which is at a 20% discount to its 3-year historical average," analyst Michel Salameh said.
Fuel retail volumes saw 8% year-on-year (YoY) growth in H1 2023 driven by strong economic activity and mobility in the UAE as well as continued expansion into Dubai with seven new stations YoY, taking the total count to 42 stations.
The UAE's largest fuel retailer grew profitability on cost discipline, the note said, adding the firm delivers steady operating cash flows which continues to fund its capex plan of AED 800-900 million to refurbish further stores and continue expansion.
Citi Research said the share price has declined 20% over the past year likely impacted by (i) funding pressures from new ADNOC listings which might have driven rotations away from ADNOCDIST, (ii) the impact of higher interest rates on yield and cost of capital, and (iii) Dubai market outperformance with a larger focus on DFM.
(Writing by Brinda Darasha; editing by Seban Scaria)
