Shares in Saudi Arabian petrochemicals giant Saudi Basic Industries Company (Sabic) are being undervalued by investors following confusion over the company's earnings in the first quarter of 2009, according to UK bank HSBC.
Shares in Sabic, which reported a loss of SR973m ($259m) for the first quarter, are valued at SR65.75 on the Tadawul, Saudi Arabia's stock exchange.
In an 11 May report, HSBC analysts set a target price of SR90.
HSBC analysts believe the major petrochemicals producer, which ranked first in the MEED Top 100 list of the biggest companies in the Middle East in March 2009 (MEED 1:3:09), included the cost of plant closures when it disclosed its first-quarter figure for the cost of goods sold (Cogs).
The analysts also say Sabic's total markdown for its 2007 purchase of GE Plastics, now Sabic Innovative Plastics, will likely total SR2.4-2.5bn, of which the company wrote down SR1.2bn in the first quarter.
Sabic only needs to make another SR1.3bn markdown for the acquisition.
Writedowns do not affect free cashflow, say the HSBC analysts, and should the petrochemicals market see demand return to the levels in reached in the first half of 2008, Sabic could add more than $2bn to its balance sheet.
"We reiterate our overweight rating on the shares, with a SR90 target price," say the analysts.
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