“During the next few years, SID should continue to benefit from a more favorable price environment than in recent years with the aim of reaching a new level in terms of revenues and operating margins. In addition, efforts to optimize The group’s costs should pay off and allow it to further improve its profitability,” wrote the broker on July 20.
In addition, the group is currently paying particular attention to the development of new projects with higher added value.
“In this logic, Sonasid has identified two new projects in which the group will invest: the production of steel fiber and a derivative of reinforcing bars for the automotive industry. Indeed, Sonasid aims to penetrate this market through the launch of a derivative of the rebar before possibly diversifying into other products intended for this market”, explain the analysts.
In addition to launching new projects, the group intends to diversify its portfolio through the launch of a new type of steel over the next few years. Moreover, following Morocco joined the ZLECAF zone (African Free Trade Area), Sonasid aims to export part of its production to Africa.
But still, China has announced its intention to reduce its steel production for environmental considerations. We believe it is important to underline that China is by far the largest producer of crude steel in the world, and that this change in strategy should open up new export opportunities for operators such as Sonasid.
Consequently, Sonasid should benefit from the conjunction of a certain number of favorable factors and judicious strategic decisions which should allow the group to consolidate its entry into a new phase of more profitable growth.
Opinion and Valuation
Sonasid is currently trading at respective 2022E and 2023E EV/EBITDA multiples of 12.5x and 11.7x, valuation levels that seem particularly low given its growth profile and the potential for improving its operating margin rates. “We therefore estimate that the stock is currently undervalued and recommend buying it with a target price of 953 DH (vs. 737 DH previously), corresponding to a potential upside of the stock of 29.3%.
“It should be emphasized that our valuation of Sonasid remains highly dependent on the evolution of steel prices on international markets and that a change in the latter’s forecasts might have an impact on our business model and consequently on our target price,” explains CFG Bank.
