Our base-case DCF to 2030 generates a TP of SAR15.10, driven by a WACC of 8.0%, terminal growth of 1.5% p.a. and the Saudi operating rig fleet at the end of the decade lower than current levels (19 vs 33 today).

Whilst ADES’ listing history is only 3 months and it screens as High Risk on our Quants Volatility Matrix, we do not apply a High-Risk rating to the equity. This is because the company was previously listed on the LSE and, in our view, the market is familiar with the operating model and management structure. 

Our investment theses and TP are subject to the following risks: 1) Low oil prices could reduce drilling activity & dayrates; (2) Market is highly fragmented with strong competition; (3) Backlog is heavily concentrated in Saudi Arabia; and (4) Negative long-term oil demand trends.

Overall, we see potential upside if Aramco re-tender all of the current offshore rig fleet, as well as higher inflation in offshore day rates (i.e., tighter fundamentals). Downside risks are if Aramco do not re-tender any of the rigs 19 new offshore rigs, alongside a slowdown in drilling activity and subsequent deflation in offshore day rates.