SICO initiates coverage on SAFCO with an "Over-weight" rating

The 31 pager highlights that SAFCO is well positioned to reap the benefits of improving fertilizer market fundamentals, driven by robust grain demand, access to cheap feedstock (natural gas) and high grain prices. SAFCO receives all of its natural gas feedstock from ARAMCO at a fixed price of $0.75/MMBTU as against the current global natural gas price of $11.4/MMBTU. This provides SAFCO an unparalleled competitive edge over global competitors.

The analysis indicates that the company has achieved robust growth in earnings over the past four years. SAFCO's revenue grew by 37% CAGR and is expected to grow further by 58% in 2008, driven by increasing urea prices, capacity expansion and higher utilization rates. Globally urea prices are seeing an unprecedented rally, which led to a year to date increase of 96% and the prices are expected to continue at higher levels up to 2009. SAFCO expanded its capacity by 76% reaching 5.1 million tonnes in April 2007. SICO expects the capacity to be further increased to 6.1 million tons by 2012.

The report further comments that SAFCO's plans to venture into steel manufacturing will be earnings' accretive, and will provide a vehicle for long term growth. SAFCO recently announced its plans to build a 1.7 million tonnes of flat products through a 50:50 joint venture with SABIC's affiliate, HADEED. The plant is expected to be operational in the next four years.

The coverage on SAFCO was initiated with an 'Overweight' rating and a fair value of SAR 289.00 per share, offering an upside potential of 17% from the current levels. The stock is currently trading at 27.9x times its 2007 earnings, and 14.8x its 2008E (estimated) earnings. The steep valuations reflects the current robust fundamentals of the sector, SAFCO's better positioning and margins within the global fertilizer industry and the increased visibility in 2009E earnings. Firm expected urea prices until 2009 are to drive earnings growth higher and presents a potential trigger to stock price.

Securities & Investment Company is an investment bank offering a selective range of services, including asset management, brokerage, corporate finance and market-making, on a regional basis and with a particular emphasis on Bahrain. SICO was incorporated in Bahrain in 1995 and holds a banking license from the Central Bank of Bahrain.

As of December 31, 2007, SICO reported total assets of BD104.832m, with shareholders' equity of BD42.106m. SICO's shares have been listed on the Bahrain Stock Exchange since May 2003. Securities & Investment Company was the first 'closed' company to list on the exchange.