Avanceon Ltd (AVN) – a leading provider of industrial based automation services in Pakistan and the Middle East. In the past five years, AVN had revenue/ earnings CAGR of 32%/34%, where penetration in the vast ME region was instrumental for growth (c.70% of AVN’s total revenues are exports).

Experts expect AVN to maintain this growth momentum, because of the rapidly increasing focus on automation, process control and productivity enhancement, among industries in both Pakistan and ME. The next big source of growth for AVN is its subsidiary, Octopus Digital Ltd (c.22% of our TP), that is expanding from after-sale maintenance solutions (to AVN’s clients) to launching new products, including a dashboard software – which will convert data (from plants etc.) into meaningful input for decision-making for its clients.

AVN has a lot more to offer

Most of the ME economies that AVN serves are set for a rebound. International oil prices (up c.6xt from the Covid-low in 2020) will help AVN to gain more contracts in Saudi Arabia and UAE, where Oil & Gas clients dominate business for AVN. Saudi revenues nosedived by 69% yoy in CY20 following the oil price crash in 2020 (largest customer was Saudi Aramco), but this was offset by a big jump in Qatar revenues. We expect that Saudi business will be reinvigorated by oil prices sustaining US$70/bbl and its plans to diversify its economy away from crude oil.

Revenues in Qatar have nearly doubled in the past two years, thanks in part to preparations for the FIFA World Cup 2022. But AVN is also attracting substantial infrastructural projects in Qatar (more diversified than Saudi), where AVN has set up its own office (otherwise third-party used to attract clients). Thus Qatar revenues are likely to remain strong beyond 2022, in our view.

Courtesy – Intermarket Securities Limited.