Analysts issue ‘Buy’ recommendation for Aradel Holdings, project 12-month target price  

Analysts have issued a buy recommendation for Aradel Holdings, which was recently listed on the Nigerian Exchange (NGX) on October 14, 2024.

The recommendation was disclosed in an initial coverage report about Aradel, published by CardinalStone and United Capital in October 2024.

According to the report released by CardinalStone, the group is projected to reach a 12-month target price of N1,258.61 based on a discounted cash flow (DCF) valuation, representing a significant upside from its listing price of N702.69.

The report further projects that the company’s market capitalization will climb to N5.47 trillion, reflecting a 78% increase from its N3.06 trillion valuation at the time of listing.

United Capital analysts, leveraging a DCF valuation with a 0.5% market premium, set a 12-month target price of N951.06, projecting a 35.3% upside from the listing price.

Reasons Behind the Buy Recommendation  

The reports cite Aradel Holdings’ impressive financial performance and the expected boom in the oil sector as key drivers behind the buy recommendation.

According to analysts at CardinalStone, the company’s return on average equity (ROAE) rose to 15.6% in the annualized first half of 2024, rebounding from 5.0% in FY 2022.

This growth was fueled by a 7.7-percentage-point increase in net income margin to 30.4% and a 23.2-percentage-point rise in asset turnover to 39.1%.

Aradel’s improved profitability is linked to effective expense management, lower interest costs, and a reduction in its effective tax rate—marking a notable turnaround from the fiscal year 2023 when the company suffered a $35.7 million foreign exchange loss.

The report also highlighted a strong 22.3% revenue CAGR driven by impressive growth across key product lines: crude oil revenues grew 21.8%, gas sales rose 38.6%, and refined products experienced remarkable growth of 70.3%.

Despite operating losses in the crude oil segment, Aradel’s profitability benefited from robust contributions in gas and refined products, allowing profit margins to reach multi-year highs in the first half of 2024.

Additionally, the company’s strategic partnership with Renaissance Africa Energy Company Limited (RAEC) is expected to strengthen its operational capacity and unlock new business opportunities, amid an anticipated boom in the oil sector within the next 12 months.

Analysts at United Capital based their decision on the positive market sentiment surrounding the oil and gas sector and projections of modest GDP growth for Nigeria within the target period.

They projected that the oil sector would achieve its first full-year growth since 2019, with crude oil production expected to reach 2.0 million barrels per day (mbpd) in 2024—an increase poised to benefit Aradel.

Backstory

• Aradel Holdings officially debuted on the Main Board of the Nigerian Exchange (NGX) on Monday, October 14, 2024, with its shares priced at N702.69 per share.
• This highly anticipated listing marks a pivotal moment for the company, aligning with its ambitious growth strategy.
• Before its listing, Aradel announced a key acquisition deal with TotalEnergies and NNPC to acquire a 100% stake in the Olo and Olo West marginal fields in Nigeria, aiming to boost its operational capacity and revenue.
• At listing, Aradel offered 4.34 billion ordinary shares with a nominal value of N0.50 each, priced at N702.69 per share, resulting in a market capitalization of N3.06 trillion.