* Flexible costs, Qatar’s growth to support Mekdam’s profitability
Highly flexible cost structure and Qatar's economic growth are expected to help Mekdam Holding Group's profit margin to range between 15% and 18% over the next 12-18 months, according to Standard and Poor's (S&P), an international credit rating agency.
Moreover, the recovery in technology business arm will help better this year's performance of Mekdam, whose minimal business capital expenditure (capex) requirements and relatively stable margins underpin its modest financial risk profile, S&P said in a report.
Mekdam, which has access to international suppliers and good earnings visibility, will debut the Qatar Stock Exchange's venture market (QEVM) from Monday.
"We anticipate Mekdam's performance will rebound from 2021, following a weak performance in 2020 caused by slower macroeconomic conditions and the impact of Covid-19," S&P said, forecasting earnings before interest, tax, depreciation and amortisation (Ebitda) to be QR25mn-QR30mn in 2021, a 10% improvement from 2020, and strengthen to QR35mn-QR40mn in 2022.
The rating agency expects the recovery in the technology division, following a 30% year-on-year decline in 2020 as a result of Covid-19-related lockdowns, to be the key contributor (to Ebitda).
In 2020, Mekdam generated QR168.7mn of revenue and QR26.8mn of Ebitda, on an S&P global ratings-adjusted basis.
S&P assumes revenue growth of 8%-10%, higher than GDP throughout its forecast period, supported by the strong QR400mn backlog, and relatively short project tenures.
Mekdam Technology contributed 55% and 42% of revenue and Ebitda in 2020.
S&P considers Mekdam's highly flexible cost structure, with variable costs contributing to more than 70% of total direct costs.
It also factored in the company's leading position in Qatar across its technology, technical services, and CAMS divisions; its strong partnerships with international system providers, such as CISCO; and its good track record with Qatari government-related entities as recurring customers, such as Qatar Petroleum.
"With a ratio of backlog to revenue higher than 2.0x in 2020, we see good earnings visibility, despite a nonrecurring client base, given the project nature of Mekdam's business," it said.
The company has minimal capex requirements of QR1mn-QR2mn annually, translating into around 1% of total sales, it said.
"We forecast Ebitda margins at 15%-18% in 2021 and 2022, benefiting from the high-value CAMS segment (25%-30% of consolidated Ebitda) and overall recovery of the domestic macroeconomic environment, which should help sustain demand in other operating divisions," S&P said.
Mekdam, which witnessed capital increase of QR15.8mn in February 2021, is the second entity to get listed on the QEVM, which is dedicated to small and medium enterprises or SMEs. It is getting listed on the bourse using the direct listing option and with the symbol “MKDM”.
The company's share price will be floated on the first day of trading, while it will be allowed to fluctuate by 10% up and down starting from the second day of trading.
The QEVM provides SME’s with many advantages as it allows them to diversify sources of funding through access to permanent equity capital whilst offering liquidity to financial, family or minority shareholders as well as visibility.