Brokerage firms back MCDC’s share offer

Several Omani research analysts from brokerage houses have backed the initial public offering of Muscat City Desalination Company (MCDC), which will close the one-month subscription of its share offer on December 18. These brokerage firms include United Securities, Gulf Baader Capital markets, Al Maha Financial Services, Ubhar Capital and Horizons Capital.

In its research note, United Securities said that the MCDC IPO is priced at a reasonable discount to its 12 month target price of 137 baisas per share.

The report added that MCDC has stable and predictable cash flows, resilient to potential shocks in electricity prices and water demand during the term of the water purchase agreement (WPA). It further states that during the post WPA period, the generation of higher cash flows is possible, as the balance sheet would be significantly deleveraged by the end of WPA.

MCDC is offering 54.44 million shares at a price of 116 baisas per share. The IPO represents an offer of 35 per cent of the share capital of the company.

At the IPO price, the company is projecting an average dividend yield of 8.3 per cent for the first five years (excluding issue expenses), with the first dividend expected to be announced in February 2018, and twice yearly thereafter.

Gulf Bader Capital Markets (GBCM) also suggested a ‘subscribe’ outlook, with a 12 month fair value price of 135 baisas per share. The report states that the strategic location of this water opportunity, along with strong shareholders’ support, strengthens their investment case. Gulf Baader also recognised the dividend yield of 8 per cent and advised to hold the stock post listing for institutional investors, looking at the medium‐term perspective, and a revival in retail investor participation in this issue, aiming for listing gains.

The plant is strategically located in the heart of Muscat, giving the company an advantageous position to remain a key water supply unit in the capital region.

Al Maha Research recommends investors ‘subscribe’ to the issue, indicating a fair value of 156 baisas per share, and the upside potential of 35 per cent on the IPO price of 116 baisas. The report further added, “We recommend investors to ‘subscribe’ to the issue, in view of the stable and defensive business model of the company, consistent profitability, attractive dividend yield, as well as the capital appreciation potential of the stock on listing and going forward,” the Al Maha report added.

“We recommend ‘subscribe’ for the IPO of Muscat City Desalination Company. The fair value of the company comes out to be OMR0.135 per share, implying a potential upside of 16.4 per cent to the IPO price of OMR0.116 per share,” Ubhar Capital said in its report.

Similarly, Horizons Capital Markets has also issued a ‘subscribe’ recommendation. Horizons Capital said that companies like MCDC are under a governmental policy that guarantees returns and takes care of most of the risks of the venture.

“The response from research analysts underlines our strong belief that MCDC IPO is a sound investment proposition for esteemed investors,” said Tamer Cankardes, Vice Chairman of Horizons Capital.

Investors who are interested in participating in the IPO can collect the forms and submit their applications at any of the six collection banks – Ahli Bank, Bank Muscat, Oman Arab Bank, Bank Sohar, National Bank of Oman and Bank Dhofar. Also, Ahli Bank, Bank Sohar and Oman Arab Bank have begun offering financing to subscribe to the IPO.

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