The indicative price range of SR23 to SR25 a share for the MBC Group IPO implies an equity value of between $2.04 billion and $2.22 billion.
The valuation definitely carries a premium, driven by several factors. MBC Group stands as a well-established and respected media company with a robust history of profitability. Its diversified portfolio includes TV channels, radio stations, and streaming platforms. Additionally, the company boasts a substantial presence in the MENA territory, a burgeoning market for media and entertainment.
A key driver of this premium valuation is the support from the Saudi government for the media sector. The government actively encourages companies to list on the Tadawul, implementing reforms to enhance the stock exchange's appeal to international investors.
This IPO coincides with a period of heightened interest in Middle Eastern assets due to the region's strong economic growth and favorable demographics.
In FY2022, MBC recorded revenues of $930 million, displaying a remarkable 23 per cent compound annual growth rate from 2020-22. Strong growth persisted into H1-2023, with adjusted EBITDA from commercial activities (excluding its Shahid streaming platform) reaching $98 million for 2022, reflecting a 20 per cent adjusted EBITDA margin.
This results in a price-to-sales ratio of 2.39 and a relatively high P/E of 96.15. Comparatively, the global SP500 Media Index has a P/S of 4 and P/E of 22.17, positioning MBC Group at a higher relative valuation than its regional as well as global peers. The positive financial performance justifies the premium valuation.
A potential rationale for this valuation gap lies in MBC Saudi's unique competitive advantage within the media industry, its diversified portfolio of channels and platforms, strong brand recognition, exclusive partnerships with global content providers, investment in original and local content, and a digital transformation strategy.
Enjoying a loyal and diverse audience across the Arab world, along with exclusive rights to broadcast popular sports and entertainment events, MBC Saudi stands out. Further, substantial investments in digital capabilities and content library expansion position the company to generate significant value in the future.
In summary, while the valuation of MBC Group's IPO carries a premium, investors may find justification in the company's strong fundamentals and favorable market conditions.