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assume a terminal growth rate of 2% across all of the markets, starting from 2023. For STC's associates, we value its holdings in Oger Telecom and Binariang using a combination of our Research team's valuation (for Oger's stake in Turk Telecom) and book value. We then add STC's net cash position at YE 2015 in deriving our PO.

Risks to our PO come from potential market share loss as both Mobily and Zain KSA, plus several MVNO's are aiming to take market share from STC domestically, following recent cut in MTR's. Additionally, we see ongoing risk from FX exposure at their subsidiary investments, especially their indirect stake in Turk Telekom.

Savola (XSAVF)
Given the diversified nature of the Savola group, we use a sum of the parts valuation in deriving our SAR46/share price objective for Savola. Specifically, we:

Value the food business on 12x 2016 earnings, a 30% discount to global peers on account have having slightly slower growth and risks presented by having a significant position in Iran (which accounts for 13% of revenues).

Value retail(Panda) at 15x 2016 earnings, a c.10% discount to global peers on account of having slower near term growth. we believe near term growth will be impacted by continued aggressive expansion and slowing demand trends in the Saudi market (following the introduction of the 2016 budget).

The investments business is valued using a variety of methods. For its stake in Almarai, we value it in line with our price objective for the shares. Savola's interests in other listed entities (Herfy, KEC and EEC) are valued at current market valuation given we do not have research coverage on the names. The stakes in none listed entities including the real estate book and private equity holdings are valued at 2x book value (YE2015).

Downside risks to our PO include higher cost escalation than we forecast, further adverse moves in commodity prices , adverse FX movements in countries outside of Saudi Arabia where Savola does business and any disruptions to its material Iranian business.

THALES (THLEF)
To derive our Thales price objective of €87, we use a 2017E sum of the parts valuation, using Rockwell Collins, Raytheon, Northrop Grumman, Ultra, and the EU Civil Aerospace peer group as peers for the Aerospace/defence segments, and Ansaldo STAS as a peer for the transport business.

At €87 Thales would trade on 18.1x 2017E P/E and 12.3x EV/EBITA which we think is appropriate given balance sheet/ portfolio optionality and building order momentum.

Upside/Downside risks to our price objective are: 1) changes in the company's free float, 2) assets swap and portfolio changes could add more value than we currently estimate 3) lower/more French defence cuts than we currently estimate.

YANSAB (XUYNF)
We apply a justified P/E multiple to derive YANSAB's PO of SAR48. The P/E is based on a normalized RoE of 14.5%, Cost of Equity of 11% and payout of 70%

Downside risks to our price objective are: 1. Lower-than-expected demand for polyester would adversely impact MEG prices and effectively earnings 2. Unexpected change in feedstock prices could negatively impact earnings 3. Unexpected shutdowns that would result in lower production.

80 GEMs Paper | 30 June 2016
Merrill Lynch
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