Saudi Tadawul profit down 35% as trading values halve

Reuters/Ahmed Yosri

• 23 businesses approved for listing in 2023
• Saudi dominated region’s listing activity in Q4 last year

Saudi Tadawul Group, the owner and operator of the kingdom’s stock exchange, on Sunday reported a 35 percent decline in first-quarter profit, as the value of trading dropped by 50 percent and costs increased.

The company reported a net profit after zakat of SAR 90.8 million ($24.21 million) for the first three months of this year, a year-on-year decrease of 35.4 percent.

Operating revenue was down 28.1 percent “driven by the decrease in trading values which contracted by 50.3 percent” the company said in a bourse filing.

At the same time, costs rose 14.5 percent to SAR 139.7 million in Q1, due to an increase in salaries and related benefits, as the company added more staff.

• Regional IPOs, the ‘cannibal’ factor and irrational exuberance
• Saudi Arabia has 23 IPOs in the pipeline as it builds on busy year
• Middle East stock markets set to continue strong run of IPOs

Saudi Tadawul Group’s net profit after zakat and tax for the whole of 2022 amounted to SAR 424.6 million, a year-on-year decline of 28 percent, on the back of operating revenue declining 8.1 percent to SAR 1.07 billion.

Saudi’s bourse capitalisation has more than quadrupled since 2018, ending 2022 at $2.63 trillion, although last year’s annual trading volumes were the lowest since 2019.

The kingdom’s bourse’s price-to-earnings (PE) ratio – which measures a company’s current share price against its earnings per share – fell by nearly half last year, from 22 in January to 12 in December. Its stock index is now down about 20 percent from last May’s 16-year high.

This slump, along with less pronounced declines on other Gulf bourses, has made some retail traders wary of buying into new initial public offerings.

“Investors began to be more discriminating from the latter half of last year,” Shakeel Sarwar, head of asset management at Bahrain’s Sico investment bank, told AGBI earlier this month.

“In 2021 and early 2022 investors could make a quick profit on almost every IPO – they were assumed to be a source of free money. IPOs will be scarcer this year, especially those by private-sector companies.”

Despite this, the outlook for new Saudi listings is optimistic.

Mohammed El Kuwaiz, chairman of the Capital Market Authority, told the Saudi Capital Market Forum in February that 23 businesses had been approved for listing in 2023 and another 75 companies were under review.

Also speaking at the forum in Riyadh, Adena Friedman, chair and CEO of Nasdaq, hailed the “vibrant” IPO environment in the kingdom.

“This region is one of the fastest growing in the world,” she said. “Saudi has done a tremendous job of bringing capabilities into the market so they can compete with global mature markets. It’s a testament to the amount of focus, energy and leadership in the country.”

Saudi Tadawul Group also announced a number of agreements with regional and international exchanges at the forum. Memoranda of understanding have been signed with stock markets in Singapore, Egypt and Qatar.

Khalid Al Hussan, CEO of Saudi Tadawul Group, said: “Our aim is to collaborate with regional and international exchanges on areas ranging from dual listing, ESG, fintech, diversity and inclusion to achieve our goal of becoming an investment destination linking East and West. 

“These agreements will also further our efforts to deliver an advanced, diverse and integrated capital market for regional and international investors, in line with the financial sector development programme under Vision 2030.”

He added: “This market has great potential, capable of delivering big achievements.”

The EY Mena IPO Eye Q4 2022 report in January said stock markets in the Middle East and North Africa were preparing for a strong pipeline of IPOs in the coming months, building on the 51 IPOs last year.

The report said Saudi Arabia continued to dominate the region’s listing activity in Q4. There were seven IPOs on the Tadawul main market, raising $4.7 billion, and six IPOs raising $65.2 million on the Nomu parallel market.