A cement company in Saudi Arabia: Monetizing a billion-dollar land
Burton Flynn, Ivan Nechunaev, Yannik Dobler
January 2024
Our fund recently invested in a $1.5b cement producer in Saudi Arabia. The company benefits from an exceptionally strong long-term demand outlook in light of the massive pipeline of megaprojects in Saudi Arabia along with the construction activities for the Expo 2030 and 2034 FIFA World Cup.
The largest domestic cement producer, this business has been growing output capacity in the last few years by installing highly efficient brand new production lines made in Germany. Its modern plant also uses clean energy as opposed to diesel, which helped the company escape the enormous recent diesel price hike of 53% which affected its competitors and triggered cement prices to increase over 40% in the past month; in fact, it is very positive for our company as the price increases along with using cleaner energy help widen its margins and thus substantially grow the bottom line. With a 15x LTM P/E valuation, this firm has cemented its place as the cheapest among Saudi peers.
Meeting with the CEO of a $1.5b cement producer in Saudi Arabia on our past trip to the country
Larger than New York's Central Park
However, what makes us most excited about this opportunity is that in addition to the perfectly aligned fundamentals and increasing cement prices, there is even more to this investment case: it comes with an extraordinary catalyst. The company has recently transferred its old factory out of the capital city Riyadh, and the vast 4.7m sqm land plot under this old factory (larger than New York’s Central Park) – which the company fully owns – will soon become available for sale or joint venture real estate development. According to our local contacts, the market value of this land in Riyadh is estimated to be over $1b, or more than two thirds of the company’s market cap! Clearly, a lot of shareholder value is waiting to be unlocked soon.
The company prefers to keep a low profile about its land treasure, and so this month we went to Riyadh to see the works on this invaluable land plot under the company’s old factory with our own eyes. Doing due diligence, we went on top of the hill at a public park nearby and observed a lot of machinery dismantling the production buildings among the large piles of debris. We also went along the perimeter of the plant, and the level of dismantlement activity and noise inside the factory’s territory was highly visible and hearable to us. Surely, the contractors hired by the company to move its last remaining production line outside of Riyadh and to demolish the remaining facilities were hard at work.
In the near future, the local authorities will announce a new urban planning program for Riyadh. We believe when the announcement regarding the intended use of this land is made (such as residential or mixed-use development), the company will monetize its precious land accordingly, delivering substantial returns to shareholders.
