Monday, Jul 16, 2012

Abu Dhabi: The National Bank of Abu Dhabi (NBAD), one of the region’s largest banks by assets, is one of the preferred stocks for portfolio investors because of its relative safety and lower downside risks. Banking analysts saying it’s a “must buy” stock given its current valuation.

“NBAD has better loan growth prospects compared to other UAE banks. Moreover, it offers the best credit quality metrics compared to other banks in our UAE coverage,” Shabbir Malek, banking analyst at EFG-Hermes, told Gulf News.

“We have a buy rating on NBAD with a fair value of Dh10.50, which implies a potential upside of around 27 per cent.”

Malek said EFG-Hermes’ fair value and recommendation are typically for a 12 month horizon, unless there is a major event which affects the company’s fundamentals.

NBAD’s stock on the Abu Dhabi Securities Exchange on Tuesday closed unchanged at Dh8.26, which Malek said reflects under-valuation of the stock.

“Since the stock is currently below our FV of Dh10.5, in my opinion it is a good time to buy NBAD,” he added.

Another Dubai-based stock trader agreed with Malek’s assessment.

“NBAD is in a very good shape and a safe stock to hold. It will probably trade in line with the market on a more defensive profile. It is one of those stocks which will outperform the market in times of sell-off,” said the trader.

“It all depends on the customer’s risk appetite. If the market is falling, NBAD is a safe option.”

Malek said worsening global macroeconomic conditions, in his view, should create opportunities for growth for NBAD as European banks withdraw from the region.

“Its NPL [non-performing loans] ratio is 3.0 per cent and its NPL coverage is 99 per cent. It has the best credit quality metrics amongst UAE banks under our coverage,” said Malek. However, he said the central bank’s new regulations on large exposures could potentially impact its long-term growth prospects.

Malek said EFG-Hermes expects NBAD to report a profit of Dh970 million in the second quarter of 2012, down 5 per cent year-on-year, “mainly due to expectations of higher costs and conservative provisions”.

NBAD began 2012 on a strong note.

Its fiscal first quarter net profit rose 12 per cent on year to Dh1.04 billion on a top line operating income of Dh2.03 billion. The bank’s net profit increased 44 per cent over the fourth quarter of 2011, NBAD said in April.

“Our deposits rose sharply this quarter but core deposits grew more steadily. The liquidity of the group remains strong and loan balances continue to grow at round Dh1 billion per month,” said Michael Tomalin, NBAD group chief executive at the time.

NBAD’s operating profit in the first quarter grew by 5.2 per cent to Dh1,384 million over the corresponding quarter of 2011, mainly driven by the international businesses and financial markets businesses, which achieved a growth of 30 per cent and 15 per cent year-on-year, respectively.

NBAD said its net interest income and net income from Islamic financing contracts for the first quarter of 2012 rose 5.9 per cent to Dh1.460 billion compared to the first quarter of 2011 while non-interest income was higher by 13.3 per cent at Dh570 million.

“The net interest margin was 2.14 per cent for the quarter, lower than 2.48 per cent for the corresponding quarter in 2011 due to increase in short-dated secured lending and maintaining a liquid balance sheet,” Nbad said.

“Loans and advances comprise only 56 per cent of total assets as at March 31, 2012 lower than last year’s average of 63 per cent.”

It said net impairment charges were Dh313 million for the first quarter compared to Dh365 million in the corresponding quarter of 2011.

“Collective provisions of Dh2.320 billion represent 1.5 per cent of the performing credit risk-weighted assets [Central Bank’s 2014 target: 1.5 per cent]. Non-performing loans increased to Dh5.100 billion, representing 3.03 per cent of the loan book,” said NBAD.

The bank’s operating expenses for the quarter ended March were Dh645 million, higher by 14 per cent compared with the corresponding period a year ago. Its cost to income ratio was 31.8 per cent for the first quarter of 2012.

By Himendra Mohan Kumar Staff Reporter

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