Shares in Saudi Steel Pipes Company (SSP) fell on Tuesday after gaining 36.7 percent in one week.

The company’s stock price ended Tuesday’s trading 1.63 percent lower, after rising 7.36 percent earlier in the session, while Saudi Arabia’s index dropped 0.49 percent. The company’s stock price has now gained 37.17 percent in value since the start of the year 2019.

Earlier in the session, the company’s stock price surged to 27 Saudi riyals, a level last seen in August 2015. It ended the trading session on Tuesday at 24.74 Saudi riyals.

SSP announced on Tuesday that it has been awarded an 82 million Saudi riyals ($21.86 million) contract from Saudi Aramco for supplying oil and gas steel pipes.

The company said in a statement to the Saudi exchange “that production and financial impact” of the contract will occur during the second half of this year.

Last week, the company also announced that Italian company Tenaris has successfully acquired a 47.79 percent stake in SSP, becoming the main shareholder.

Since last week’s announcement, SSP’s stock has added 36.7 percent, despite today’s drop.

Fatma Haddad, an analyst at Tunisia-based Alphamena, told Zawya by email that the completion of the Aramco contract is “in line with Tenaris’ willingness to expand its exposure to Aramco.”

Haddad added that both announcements, the Tenaris stake acquisition in SPP and the 82 million Saudi riyals contract signed with Aramco, “have boosted the stock price (of SPP) as the market buys the synergies prospects generated through the entry of Tenaris in SSP’s capital, rather than the current activity.”

Saudi Steel Pipe’s stock appears to be overbought , according to the Relative Strength Index (RSI 14). The index is a measurement between zero and 100. Traditionally, the RSI is considered overbought when above 70 and oversold when below 30. Data from Eikon shows that the stock has an RSI of 86.350.

“With the current rally, SSP exhausted its fundamental potential. We believe that, at these valuation levels, SSP is expensive and that the perspectives on the mid-run are already priced in the current price," Alphamena’s Haddad said, adding that “it is too early to quantify the effective impact of Tenaris’ expertise.”

Tenaris is a global manufacturer of steel pipes, which had sales of $5.3 billion and 21,605 employees by the end of 2017. Last week, the company said in a statement that it had paid 528.89 million Saudi riyals for its 47.79 percent stake from a private group of shareholders. The statement said Saudi Steel Pipes has a manufacturing capacity of 360,000 tons per year.

According to data from Eikon, one analyst has a ‘hold' rating on the company’s stock, and one analyst has a ‘sell’ rating.

Elsewhere in the region, Dubai’s index edged 0.19 percent lower on Tuesday, Abu Dhabi’s index dropped 0.36 percent, Qatar’s index edged 0.17 percent higher, Kuwait’s premier market index rose 0.39 percent, while Oman’s index gained 0.3 percent and Bahrain’s index rose 0.47 percent.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(gerard.aoun@refinitiv.com)

© ZAWYA 2019