Arabian American Dev. Co. (ARSD:BUY) Record Q4 petrochemical revenues (+33%) driven by 40% rise in volumes.

Arabian American Dev. Co. (ARSD:BUY) Record Q4 petrochemical revenues (+33%) driven by 40% rise in volumes.

25-APR-14 – Arabian American Dev. Co. (ARSD:BUY) Record Q4 petrochemical revenues (+33%) driven by 40% rise in volumes. 2013 saw records for revenues, EBITDA, net income, and EPS. We maintain our BUY rating and raise our price target, as we believe ARSD remains substantially undervalued with continued opportunities in petrochemicals and equity income from its AMAK investment.

Q4:13 HIGHLIGHTS

  • ARSD reported Q4:13 diluted EPS of $0.13 vs. $0.08 LY (restated), consensus of $0.15, and our $0.16 estimate. The performance was driven by a 40% rise in petrochemical volumes, partially offset by lower petrochemical margins coupled with lower AMAK equity income of $1.1 million.
  • Q4 revenues rose 33% to $66.6 million vs. $49.9 million (restated) in Q4:12 and were above our $55.7 million estimate due principally to higher sales volumes and toll processing fees, partially offset by lower product prices.
  • Volumes rose 40% to 19.7 million gallons from 14.1 million in Q4:12, well above our 15.5 million gallon estimate. North American volumes rose 35% to 15.7 million gallons due to the increased deliveries to a Canadian tar sands customer and a 60% increase in international sales to 4.0 million gallons.
  • Gross margins (excl. D&A) were 16.3% vs. 15.5% LY but below our 17.8% estimate. The shortfall vs. our estimate was due to larger than expected sales volumes of by-products at lower margins. The by-product volumes arose from higher sales of prime products to the Canadian tar sands customer.
  • We previously revised our FY:14 estimate to $1.03 from $0.86 and our FY:15 estimate to $1.23 from $1.02 to reflect higher petrochemical volumes partially offset by lower margins, as well a reduction in estimated AMAK earnings. We maintain our BUY rating and raise our price target to $19.50 from $18.50.

RISKS

  • Continued volatility in the company’s product selling prices and feedstock (natural gasoline) could pressure margins and profitability.
  • Delays in signing new customers could restrict revenue and earnings growth.

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