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AlArabia receiving numerous requests to expand advertising business regionally: CEO

Published: Updated:

Arabian Contracting Services Company (AlArabia) has received numerous requests, including from government agencies, for it to apply the same business model it uses in Saudi Arabia to other markets in the region, the company’s CEO Mohamed Al-Khereiji, said in an interview with Al Arabiya.

While Saudi Arabia remains the company’s primary focus for now, these requests will likely lead to expansion across the region, the CEO said.

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“I expect that this will drive us to the ranks of leading Saudi corporations that can draw advertising budgets for the Kingdom, or operate in areas in the region where Al Arabia can bolster economic capabilities,” Al-Khereiji said.

Earlier this month, AlArabia announced its intention to list 30 percent of its shares on the Saudi Stock Exchange (Tadawul). MBC Group and Engineer Holding Group Company, both major media companies, hold stakes in AlArabia.

AlArabia is currently the largest outdoor advertising company in the Kingdom.

Al-Khereiji was bullish on the growth of AlArabia, noting that, given the advertising market can often be unaffiliated with individual countries, “you find that advertising agencies book ads for international corporations or trademarks, while the same company running the ads is present in the region through regional offices.”

“We seized this opportunity to expand our regional reach and gain a greater share of the advertising market in the region,” he added.

Financial challenges

The COVID-19 pandemic caused dramatic upset across most economic sectors, with the outdoor advertising industry standing by as one of the causalities while people were told to stay at home amid lockdown rules.

In responding to the pandemic, Al-Khereiji told Al Arabiya that “adaptability is one of the company’s strongpoints, due to its solid financial adequacy, which enabled it to bounce back quickly and recover during the pandemic.”

“Let's not forget that we were at home for three or four months in 2020, with the billboards totally neglected on the streets, resulting in zero income during this period,” he added.

For the future, Al-Khereiji noted that 2020 “cannot be taken as a benchmark due to the small profits of just 25 million riyals.”

Since the challenges caused by COVID-19 have now eased, Al-Khereiji says the company has not yet fully recovered, but is “poised to make excellent profits [in 2021], very close to those of 2019.”

On Sunday, GIB Capital, the bookrunner for AlArabia’s initial public offering (IPO) announced that the offering price range for shares would be between 90 to 100 riyals each, a statement from Tadawul read.

Based on this, and earnings of 25 million riyals in 2020, AlArabia’s price-to-earnings ratio sits very high, albeit this figure is based on revenue achieved under exceptional COVID-19 challenges. Given AlArabia’s ongoing recovery from the pandemic, Al-Khereiji expects the P/E ratio to begin to decrease to around 20 times, a significant improvement for the company’s IPO prospects, he said.

“I believe that the many funds that requested this price were targeting 2022, which they expected to witness a stronger comeback and that the company be awarded an array of qualitative new projects, such as those related to transportation or other projects,” he said.

“All of these projects can help us amass greater profits, and therefore P/E ratio is forecast in the 20s, which is quite good,” he added.

Dividends

The company’s dividend payout ratio has varied over the past three years: It was 30 percent in 2018, about 60 percent in 2019, and over 90 percent in 2020.

When asked what can be expected in the coming years, the CEO said: “We should not be looked at as a company that is expected to make payouts, because we are currently in a period of growth.”

Reinvesting profits into growing the business, rather than paying shareholder dividends, is a tactic often used by companies which are experiencing periods of growth.

“From the very first day we decided to get listed in the market we did not pay dividends,” Al-Khereiji explained.

During the last couple of years, Al-Khereiji said the company may have reached “above 40 percent in terms of dividend payout ratio,” due to its sizeable investments in technology, and in the coming years he expects the ratio to exceed 50 or 60 percent.

“All proceeds from the IPO will be going to exiting shareholders, meaning that there will be no capital hike as the money will go to pay exiting shareholders,” the chairman said.

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