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As the Dubai-based road toll operator Salik readies to roll out variable toll road pricing from the end of January, the stock, which has been an outperformer on the Dubai Financial Market (DFM), is seen as overvalued.
The stock is trading at a last twelve months (LTM) price-to-earnings (P/E) multiple of near 36x, only slightly down from the 52-week high of nearly 39x, according to LSEG data. The average P/E for DFM stocks is 5.4.
In November, Dubai’s Roads and Transport Authority (RTA) said Salik would implement the variable pricing model which would increase revenue while cutting congestion on the roads.
Other than the timing, there are no surprises there. The variable pricing mechanism and other revenue generating measures, including additional gates, monetization of traffic data, and advertising and consultancy services are part of Salik’s growth plans.
Salik announced two new gates in January last year along Sheikh Zayed Road, the main artery that connects key Dubai communities, taking the total number of revenue-generating gates to 10. The stock surged nearly 77% in the following months to a peak of 5.80 dirhams ($1.58). On Wednesday, the stock closed at AED 5.35.
Good news baked in
Analysts believe the news related to the roll-out of the variable pricing was already baked into the price.
Shadab Ashfaq, a senior analyst at the UAE-based Al Ramz Capital said his brokerage had highlighted Salik’s stretched valuation on November 20 when the stock was trading at AED 5.33 amidst otherwise bullish sentiment.
“We then downgraded the stock to ‘Equal Weight’, with a revised fair value of AED 4.65 per share, as we believed that much of the potential, yet unannounced, good news was baked in… We also emphasised that for the share price to be sustainable, most of the traffic would have to fall under the variable pricing schedule, which was unlikely in our opinion.”
According to its financial presentation following Q3 results, Salik is targeting a 25–26% topline growth in 2025, largely attributed to the addition of new gates. Excluding the impact of these gates, “organic growth is projected at approximately 4–5%, underscoring the pivotal role of new gates as key drivers for revenue expansion,” said Ashfaq.
By Salik’s own guidance, the new pricing model is expected to generate additional revenue of between AED 60 million and AED 110 million. HSBC Global Research says this additional revenue implies 2.5-4.6% incremental 2025 earnings for Salik.
Ahmed Hazem Maher, an analyst covering the stock at EFG-Hermes Research told Zawya: “The dynamics are positive, the company is doing very well, they are executing plans very well on the ancillary services that they have been promising. It is just that Salik’s valuation is stretched.”
“On a forward-looking basis, we are expecting 38% Y-o-Y growth in EPS (2025 vs 2024), which would put the stock at a P/E multiple of 25x (based on today’s price and EFG estimates),” said Maher.
EFG Hermes currently has a target price of AED 5 per share on Salik. According to LSEG data, the mean target price of the stock is AED 5.26.
Interestingly, Parkin Company PJSC, a peer of Salik and listed on DFM, also trades at a P/E (LTM) of 34.55x, according to LSEG data.
However, Dubai Taxi Co., a company also dependent on rising economic activity and population increase, trades at a P/E (LTM) of 21.81x, according to LSEG data.
Benefit from Dubai’s growth
Salik’s earnings potential is robust as it is a beneficiary of Dubai’s growth. The city has seen around half a million new residents since 2020, drawn by the relatively lower taxes, positive changes to the UAE’s resident visa regime, and safe-haven status amidst the conflict emerging elsewhere in the region.
The demographic growth is expected to continue at a rate of 2.8% annually.
“While new gates and variable pricing strategies are already factored into the current valuation, sustained growth in road usage driven by demographic expansion could provide additional upside. On the downside, a short-term decline in traffic, potentially caused by a temporary decrease in population due to geopolitical or economic factors, could negatively impact revenue,” said Ashfaq.
Salik benefits from a unique ownership structure where the RTA and the Dubai government are majority stakeholders, and the same authority oversees road infrastructure. (Salik is 75.1% owned by the Government of Dubai, through the Dubai Investment Fund, with the remaining shares held publicly.)
“This arrangement supports strong margins and allows a high dividend payout. However, in our opinion, the margins for such ancillary payment collection services are unlikely to match those of the core toll business,” he added.
Ancillary revenue streams include the paid parking system at Dubai Mall, partnership with Parkonic, the UAE’s largest private sector parking operator, and the tie-up with Liva to offer insurance solutions.
However, the question remains whether such initiatives warrant the current valuation.
“Non-toll or ancillary revenue streams remain minimal and immaterial at present. For instance, parking at Dubai Mall generated only AED 2.6 million in revenue in Q3, contributing less than 1% of total revenues. This highlights the limited role of non-toll segments in the growth, at this stage,” said Ashfaq.
Maher said while individually the ancillary revenue streams are not substantial, cumulatively they could add up. “There are very limited costs associated with these revenue streams, so they are very high margin businesses and accretive to earnings.”
(Reporting by Brinda Darasha; editing by Seban Scaria)
