Undervalued Middle Eastern Small-Caps with Resilient Fundamentals and Strong Growth Potential

In a stabilizing Middle Eastern market, where infrastructure expansion and digital transformation are driving sector-specific growth, three small-cap stocks—National Cement Company (NCC), Saudi Azm for Communication and Information Technology, and Hilan Ltd.—stand out as compelling contrarian value opportunities. These companies have not only demonstrated disciplined debt reduction but also outperformed their industries in earnings growth while trading at significant discounts to their intrinsic values. For long-term investors seeking asymmetric risk-reward setups, they offer a rare combination of resilience and upside potential.

National Cement Company: A Debt-Free Powerhouse in a High-Growth Sector

The cement industry in the Middle East is on a robust growth trajectory, projected to reach $16.3 billion in 2025 (CAGR of 5.0%), fueled by Vision 2030 and Vision 2021 infrastructure projects. National Cement Company (NCC), a UAE-based leader, is capitalizing on this momentum.

NCC has achieved a remarkable financial milestone: it is now debt-free, having reduced its debt-to-equity ratio from 21.8% to 0% over five years. This pristine balance sheet positions it to weather commodity price volatility and capitalize on expansion opportunities. Despite a minor decline in Q1 2025 sales to AED 51.6 million, the company's net income surged to AED 157.16 million, reflecting 15.3% earnings growth—well above the industry's 12.7% average.

More compelling is its valuation. NCC is trading at 61% below estimated fair value, a discount that seems unjustified given its debt-free status, strong EBITDA margins, and alignment with regional infrastructure demand. For investors, this represents a low-risk entry point to a company with a track record of prudent capital allocation.

Saudi Azm: A Tech Play with Explosive Earnings Growth

Saudi Arabia's digital transformation is accelerating, and Saudi Azm is a key beneficiary. The company, which provides IT solutions across four segments—Advisory, Enterprise Services, Proprietary Technologies, and Platforms for Third Parties—has slashed its debt-to-equity ratio from 70.6% to 1.94% in five years, a testament to its financial discipline.

What truly sets Azm apart is its 47.7% earnings growth over the past year, dwarfing the IT industry's 21.9% average. This outperformance is driven by strategic wins, including a partnership with the National Housing Company and contracts exceeding 5% of last year's revenue. These developments signal strong future demand for digital services in Saudi Arabia's public and private sectors.

Despite this, Azm's stock is trading at an 80.4% discount to fair value, a valuation that appears disconnected from its fundamentals. This discount could be a contrarian opportunity for investors willing to bet on the company's execution in a rapidly expanding market.

Hilan: A SaaS Leader with Bulletproof Financials

Hilan, Israel's leading SaaS provider, operates in the high-growth enterprise software sector. The company has reduced its debt-to-equity ratio from 33.9% to 3.4% over five years, while its interest coverage ratio remains an impressive 57.7 times EBIT, underscoring its liquidity strength.

Hilan's Q1 2025 results highlight its resilience: sales rose to ILS 782 million, and net income hit ILS 66 million, reflecting 14% earnings growth—ahead of the industry's 11.7% average. Its diversified revenue streams, spanning Business Information Services, Payroll Solutions, and Software Marketing, provide stability in a volatile market.

The stock is currently undervalued, though precise discount metrics are less emphasized due to limited public data. Given Hilan's strong financial health and recurring revenue model, it represents a high-conviction play for investors seeking exposure to the SaaS boom in the Middle East.

Broader Market Tailwinds: Stabilization and Structural Growth

The Middle Eastern market is stabilizing on several fronts. Infrastructure-led demand, supported by Vision 2030 and similar initiatives, is creating long-term visibility for construction and materials sectors. Meanwhile, regulatory shifts—such as mandatory environmental product declarations (EPDs) for cement—are pushing companies like NCC toward sustainable practices, enhancing their competitive edge.

In the IT sector, public-private partnerships are accelerating innovation, particularly in green technologies and cloud computing. Phoenix Group Plc's expansion in crypto mining, despite short-term losses, and Alarum Technologies' SaaS growth illustrate the sector's potential. For small-caps like Azm and Hilan, these trends create a fertile ground for scaling operations.

Conclusion: Contrarian Opportunities in a Stabilizing Landscape

National Cement Company, Saudi Azm, and Hilan exemplify the asymmetric risk-reward profiles available in today's Middle Eastern market. Each has reduced leverage, outperformed industry peers in earnings, and trades at a meaningful discount to fair value. While market volatility and macroeconomic risks persist, these companies' strong fundamentals and alignment with structural growth drivers—infrastructure, digitalization, and ESG compliance—make them compelling long-term investments.

For value investors with a multi-year horizon, the current valuation levels present an opportunity to acquire undervalued assets with substantial upside. As the region continues to stabilize and grow, these small-caps could deliver outsized returns for those willing to look beyond short-term noise.