Undervalued Small-Cap Gems in the Middle East: A Strategic Play for Long-Term Growth

The Middle East is undergoing a profound economic transformation, driven by ambitious national visions and a surge in infrastructure and technology investments. For investors, this shift has created fertile ground for identifying high-quality, fundamentally strong small-cap companies in niche sectors such as construction, aerospace, and fintech. These firms, often overlooked by broader markets, offer compelling long-term growth potential at attractive valuations.

Construction: Riyadh Cement and the Saudi Infrastructure Boom

Riyadh Cement (SASE:3092) exemplifies the intersection of strong fundamentals and strategic positioning. Despite a 10.5% year-on-year decline in Q2 2025 net income to SAR 57.47 million, the company’s sales rose to SAR 190.89 million, reflecting resilience in a competitive market [1]. Over the first half of 2025, total sales reached SAR 416.11 million, outpacing the SAR 352.55 million recorded in 2024 [2]. The company’s debt-free balance sheet and trading price below its estimated fair value further enhance its appeal [3].

The Saudi cement market is projected to grow at a 5.25% CAGR through 2033, fueled by Vision 2030 megaprojects like NEOM and the Red Sea Project [4]. Riyadh Cement’s role in supplying critical materials for these initiatives positions it to benefit from sustained demand, even as near-term earnings face margin pressures.

Aerospace: Ashot Ashkelon and the Defense Tech Renaissance

In aerospace, Ashot Ashkelon Industries (TASE:ASHK) stands out as a high-growth Israeli defense and aerospace firm. The company reported Q2 2025 sales of ILS 119 million, up 35% year-on-year, with net income rising to ILS 14.7 million [5]. Over five years, earnings have grown at a 40.6% annualized rate, driven by its expertise in advanced manufacturing and military systems [6]. Ashot’s net debt-to-equity ratio of 10.9% and EBIT interest coverage of 6.3x underscore its financial discipline [7].

The Middle East aerospace market is expanding rapidly, with the region’s aviation sector growing at a 6% annual rate and the aerospace materials market projected to reach $4.8 billion by 2033 [8]. Ashot’s strategic focus on high-value aerospace solutions aligns with this trend, particularly as Gulf states modernize their defense capabilities and invest in next-generation technologies.

Fintech: Nayifat Finance and the Challenges of Adaptation

Nayifat Finance (SASE:4081) presents a more complex case. The Saudi fintech firm reported a 59.4% year-on-year drop in Q2 2025 net profit to SAR 15.6 million, attributed to reduced early settlements and rising operating costs [9]. H1 2025 net profit fell 29.5% to SAR 39.1 million, with revenue declining 11.3% to SAR 82.7 million [10]. However, the company’s stable capital base—total shareholders’ equity of SAR 1.44 billion—provides a buffer for strategic repositioning [11].

Nayifat’s challenges reflect broader shifts in Saudi Arabia’s consumer financing landscape, where competition and regulatory changes are reshaping the market. Yet its commitment to transparency and innovation in SME financing could position it for a rebound if it accelerates loan origination and diversifies its offerings [12]. At a P/E of 13.3x and EV/Sales of 4.69x, the stock remains attractively valued relative to peers [13].

The Aerospace and Cybersecurity Frontier

Beyond construction and fintech, the Middle East’s aerospace and defense sectors are emerging as high-conviction areas. Altinay Savunma Teknolojileri (BIST:ALTAY) and Aryt Industries (TASE:ARYT) are two standout names. Altinay reported 86.7% earnings growth in 2025, driven by its expertise in unmanned systems and stealth technology [14]. Aryt Industries, meanwhile, surged 459% in earnings, capitalizing on the region’s cybersecurity needs [15].

The Middle East cybersecurity market is projected to grow at a 9.2% CAGR through 2030, reaching $26.04 billion, as governments prioritize digital infrastructure and threat mitigation [16]. Aryt’s focus on securing critical infrastructure and its low debt profile make it a compelling long-term play [17].

Conclusion: A Portfolio of Resilience and Opportunity

The Middle East’s small-cap market is a mosaic of companies navigating macroeconomic shifts with varying degrees of success. Riyadh Cement’s infrastructure ties, Ashot Ashkelon’s aerospace innovation, and Aryt Industries’ cybersecurity expertise represent distinct yet complementary opportunities. While Nayifat Finance’s near-term struggles highlight the risks of sector-specific volatility, its valuation and strategic flexibility suggest potential for recovery.

For investors with a long-term horizon, these firms offer a blend of undervaluation, sectoral growth, and strategic alignment with regional megatrends. The key lies in patience and a willingness to bet on companies that can adapt to—and benefit from—the Middle East’s evolving economic landscape.

Source:
[1] Riyadh Cement Q2 2025 Earnings Report [https://www.marketscreener.com/news/riyadh-cement-company-reports-earnings-results-for-the-second-quarter-and-six-months-ended-june-30-ce7c5ededc8ef326]
[2] Riyadh Cement Half-Year 2025 Performance [https://www.tradingview.com/news/reuters.com,2025:newsml_PLX4173AD:0-riyadh-cement-q2-net-profit-sar-57-46867-million/]
[3] Unveiling Three Undiscovered Gems in the Middle East Market [https://simplywall.st/stocks/sa/materials/sase-3092/riyadh-cement-shares/news/unveiling-three-undiscovered-gems-in-the-middle-east-market]
[4] Saudi Arabia Cement Industry Report 2025 [https://finance.yahoo.com/news/saudi-arabia-cement-industry-report-083200138.html]
[5] Ashot Ashkelon Q2 2025 Financials [https://simplywall.st/stocks/il/capital-goods/tase-ashk/ashot-ashkelon-industries-shares/news/exploring-undiscovered-gems-in-the-middle-east-july-2025-1]
[6] Ashot Ashkelon’s Five-Year Earnings Growth [https://www.ainvest.com/news/undiscovered-gems-middle-east-stocks-strong-fundamentals-q3-2025-2507/]
[7] Ashot Ashkelon’s Debt and Coverage Metrics [https://simplywall.st/stocks/il/capital-goods/tase-ashk/ashot-ashkelon-industries-shares/news/exploring-undiscovered-gems-in-the-middle-east-july-2025-1]
[8] Middle East Aerospace Materials Market Outlook [https://www.verifiedmarketreports.com/frontier-insight/outlook/aerospace-materials-market/middle-east-and-africa/]
[9] Nayifat Finance Q2 2025 Earnings Report [https://saudistandard.com/2025/07/31/nayifat-finance-h1-results-2025/]
[10] Nayifat Finance H1 2025 Performance [https://www.marketscreener.com/quote/stock/NAYIFAT-FINANCE-COMPANY-129100665/]
[11] Nayifat Finance Capital Base Stability [https://saudistandard.com/2025/07/31/nayifat-finance-h1-results-2025/]
[12] Nayifat’s Strategic Re-Expansion Plans [https://nayifat.com/investors/]
[13] Nayifat Finance Valuation Metrics [https://www.marketscreener.com/quote/stock/NAYIFAT-FINANCE-COMPANY-129100665/]
[14] Altinay Savunma’s 2025 Earnings Growth [https://altinaysavunma.com/en/news/altinay-defense-showcases-future-vision-uez-2025]
[15] Aryt Industries’ Earnings Surge [https://www.ainvest.com/news/undervalued-middle-eastern-stocks-high-growth-sectors-strategic-play-2025-2508/]
[16] Middle East Cybersecurity Market Forecast [https://www.marketsandmarkets.com/PressReleases/middle-east-cyber-security.asp]
[17] Aryt Industries’ Cybersecurity Positioning [https://www.ainvest.com/news/undervalued-middle-eastern-stocks-high-growth-sectors-strategic-play-2025-2508/]