31 January 2016
· DU MSCI Inclusion no earlier than one year following a potential FOL increase

· Arqaam currently has a "Buy" rating on DU

Dubai - Arqaam Capital, the specialist emerging markets Investment Bank, said in a strategy note that it sees Emirates Integrated Telecommunications Company (DU) as the next candidate in the MENA telecom space for an increase in its foreign ownership limit (FOL) after Etisalat's FOL increased to 20% in September 2015.

Arqaam expects that the increase in liquidity of DU shares as a result of lifting foreign ownership restrictions would be enough for it to qualify for the MSCI Emerging Markets Index after 12 months if it were to lift the foreign ownership for institutional investors.

Tibor Bokor, Head of TMT research at Arqaam Capital, said, "We see DU as the next candidate for an increase in its foreign ownership limit after Etisalat. In DU's case, however, we would expect MSCI inclusion to come no sooner than a year after the FOL change due to its relatively lower liquidity as we estimate its annualized Traded Value Ratio (ATVR) in 2015 to have been only c.9%, below the required 15%. Liquidity would need to increase by 67% to an Average Daily Trading Volume of c.USD 1.0m versus the current USD 0.6m. Arqaam expects the ADTV to increase to at least USD 2-3m per day based on the liquidity of similar sized stocks that allow foreign ownership."

"In addition, MSCI criteria require four consecutive three-month ATVRs greater than 15%, implying that DU would need to wait another year to be able to meet this requirement," Bokor added.

Du's inclusion in the MSCI Emerging Markets Index would result in the company representing 0.04 per cent of the index at current valuations, boosting the UAE's overall weighting in the index to about 0.89 per cent from its current level of 0.85 per cent.

It is also worth noting that an FOL increase is limited to 20% as the current total free float is 21%, while the UAE government owns the rest. "In the future, we would not be surprised if a secondary public offering is made and the FOL increases even further, but we would expect this to happen at more attractive valuations following MSCI inclusion," Tibor said.

Arqaam expects DU's fixed line market share to grow further in 2016 as the company will be able to offer pay TV services on Etisalat's network and data services for corporate clients. Arqaam currently has a "Buy" rating on DU, with a target price of AED6.4.

-Ends-

About Arqaam Capital
Arqaam Capital is a specialist emerging markets investment bank, bringing regional and international product offerings to the emerging markets.  Arqaam Capital combines international best practice with expertise in the markets in which we operate. Our primary role is to provide financial intermediation and create investment opportunities for emerging markets investors looking to invest in their own markets and abroad, as well as international investors seeking opportunities in target emerging markets.   Arqaam Capital operates out of three hubs, namely the Dubai International Financial Centre (DIFC), Cairo and Johannesburg. Arqaam Capital has ten business lines -  Corporate Finance, Asset Management, Cash Equity, Credit Trading, Equity Derivatives, Capital Markets Advisory, Infrastructure, Principal Finance, Treasury and Custody. In addition, Arqaam Capital provides in-depth research on 268 listed Middle East and Africa (MEA) companies across 26 countries and a wide-range of sectors, including the largest global coverage of MENA equities. 

www.arqaamcapital.com

For more information, please contact:
Mohamed El Khalouki
Arqaam Capital
Tel: +971(0)4 507 1912
Email: mohamed.elkhalouki@arqaamcapital.com

Edward Moore
Brunswick
Tel: +971(0)4 446 6270
Email: emoore@brunswickgroup.com

© Press Release 2016