Salik Revises Revenue Guidance, Sees Stock Surge
The share price of Salik, Dubai’s road tolls operator, has surged almost 10% since Wednesday after an upward revision of its revenue guidance. The firm has upgraded its revenue growth guidance to 4-6%, which is substantially higher compared to the previous estimate. Salik’s EBITDA margin guidance also came in higher, revised up to 67-68% from the prior estimate of 65-66%.
Two New Toll Gates to Drive Further Growth
One of the main reasons for optimism about Salik lies in the addition of the two new toll gates, Business Bay and Al Safa South, expected to be onstream by the end of November, worth a combined AED 2.73 billion ($743 million), according to a concession agreement with Dubai’s Roads and Transport Authority (RTA). This will continue to solidify Salik’s position in the market and complement the robust GDP growth in Dubai.
Long-term Concession and Payment Structure
Salik was granted a 49-year concession of its eight older toll gates two years ago, just before its IPO in September 2022. Under this arrangement, the firm will be paying annual compensation to RTA amounting to AED 455.7 million, which would be divided into two equal installments of AED 227.9 million each after every six months.
These, Salik intends to finance from existing cash balances and cash flows from operations over the next few years. More importantly, management indicated that it will not take any more debt to finance those, which means limited, if any, effect on the balance sheet.
Al Ramz Investment’s Outlook: Leverage and Dividend Policy
It has also pointed out that owing to the change in the payment expectations for new toll gates, Salik’s credit outlook has brightened. Whereas earlier, higher payments were expected during the beginning of a concession or in 2024, this estimate was altered now, which provides a brighter leverage outlook for the company over the short run.
Anyway, Salik leverage is likely to be maintained at the current level during the medium term. Al Ramz also sees the company maintaining its present dividend policy and projects a dividend of 19 fils per share for 2025 that translates into a yield of 4.3%.
Stock Rating and Fair Value Adjustment
Al Ramz Investment remains optimistic about Salik’s growth prospects, but has slightly reduced the fair value estimate to AED 4.20 per share from AED 4.25. This fresh target still represents a 15% upside from its Friday morning trading price of AED 3.66, according to data from LSEG.
Hence, Al Ramz retains the overweight recommendation it has on Salik, due to its confidence in the long-term growth possibilities that it can achieve for shareholders.
