• Home
• Financial Services
• News Article

Current rally is sustainable for short term, says Credit Suisse

Terming the latest $10 billion (Dh36.7bn) support package to Dubai World as a major trigger on the Dubai Financial Market ( DFM ), Swiss bank Credit Suisse forecasts that the current rally is sustainable for short term.

The strong forex reserves and attractive valuations make Qatar and Saudi most attractive among GCC, said a report on MENA region by the Swiss bank. The restructuring plan of Dubai World will ease uncertainty among market players and set the positive tone for next level of buying opportunity in the UAE, the report said.

"We think the current rally should sustain for a few days and this provides a good selling opportunity. Given that the two days limit up, valuations will not be attractive if we adjust for leverage," Mohamad Hawa, research analyst at Credit Suisse, said in the report.

Based on valuations and economic fundamentals, Credit Suisse has framed a model portfolio comprising Dubai Financial Market , Arabtec , Aldar Properties , Sorouh Real Estate Company , First Gulf Bank , Union National Bank , Sabic , Al Rajhi Bank , Commercial Bank of Qatar , Doha Bank , Almarai , Savola , Samba Financial Group , Qtel , Mobily and Saudi Telecom Co.

The latest move of Abu Dhabi and UAE Central Bank is expected to soothe the fears of creditors and reduce the pressure on the pace of restructuring.

"We, however, reiterate our view that restructuring is likely to continue in Dubai's government owned entities, with higher chance of more disciplined and orderly restructuring," said Hawa.

Credit Suisse's report was upbeat on Qatar and Saudi Arabia for their forex reserves, increasing revenues and attractive valuations.

"We prefer Saudi Arabia and Qatar in the region. Saudi Arabia is the least geared economy in the GCC as its sovereign debt to GDP is only 13 per cent, while Qatari companies benefit from strong government support and should generate the highest profitability globally in 2010E with RoE and EBITDA margins of 17.2 per cent and 49.4 per cent, respectively. Qatar's valuations also appear reasonable, with a 2010E P/E of 9.8, at respective discounts of seven per cent and 24 per cent to Emea and EMF," said Hawa.

Emaar target price Dh5.25
Credit Suisse has upgraded Emaar from 'neutral' to 'outperform', while maintaining the target price of Dh5.25 per share.

The market heavy weight's shares on Dubai Financial Market ( DFM ) added 6.99 per cent and closed at Dh3.98 yesterday.

Credit Suisse is upbeat over the latest government support for Dubai World as it works as a positive catalyst for the market in general. Emaar is trading at 0.6 times of price-to-book value (P/BV) as per 2010E, a 35 per cent and 52 per cent discount to Mena and global peers respectively.

"We upgrade Emaar from Neutral to Outperform and maintain our target price of Dh5.25 per share. Although we believe that Emaar doesn't need any financial support from the government," said Ahmed Badr and Hans Zayed, research analysts at Credit Suisse.

Using Sum-of-The Part-Valuation (SoTP) method, Credit Suisse has valued each business segment in each country separately. The research methodology included different discount rates for each country of operation for better ascertainment of valuations.

"We believe that Emaar 's investment properties portfolio of malls and hotels is a key value driver. About 59 per cent of our SoTP valuation for Emaar [Dh3.09 per share] is derived from the malls and the hotels businesses in Dubai mainly from Dubai Mall, Dubai Marina Mall and the Address hotels, which are currently fully operational," said the analysts.

Credit Suisse expects that recurring income from malls and hotels to reach 24 per cent of revenue in 2009E, and will increase to 37 per cent of revenue by 2012E.

"Accordingly, we believe that the market is only pricing in the value of the investment properties portfolio and not discounting the value of property sales projects in Dubai mainly Burj Dubai and other projects in regional and international markets such as Egypt, Saudi Arabia, Morocco, Turkey and Syria," they said.

While citing reasons for upgrading Emaar , Badr and Zayed said: "We believe the cancellation of the proposed merger with Dubai Holding 's real estate subsidiaries is positive as it eliminates Emaar 's exposure to additional real estate assets in Dubai."

By Sreenivasa Rao Dasari

© Emirates Business 24/7 2009