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Oil, gas marketing companies outperform MSM 30 Index

By A. E. JAMES MUSCAT: Oil and gas marketing and distribution companies have outperformed (in terms of investor returns) the Muscat Securities Market 30 Index over the last seven years, according to a research report prepared by Al Maha Financial Services.

The report, which tracked the performance of the Muscat bourse and shareholder returns of individual companies for a seven-year period between 2005 and 2011, said that out of the first nine firms in terms of returns, four are engaged in oil and gas marketing business.

"The oil and gas companies have strong and stable core business models with healthy cash reserves and zero or low debt. Historically, these companies have achieved constant positive growth and paid high cash dividends to investors," said the research report, prepared jointly by research analysts Suresh Kumar, Radhika Gadhia and Khushboo Badlani.

Shell Oman Marketing led the list with a 517 per cent shareholder return for the seven-year period, followed by Oman Oil Marketing with a 398 per cent return.

Further, Al Maha Petroleum Products Marketing and Muscat Gases bagged the fourth and sixth positions with an investor return of as high as 347 per cent and 249 per cent, respectively, for the seven-year period.

"The future outlook of this sector continues to remain positive with Oman's investment in the oil and gas sector expected to exceed RO6.6 billion during the Eighth Five Year Plan and estimated at RO1.3 billion (13 per cent of the estimated expenditure) for the current year," noted the report.

The Al Maha report also noted that most of Muscat bourse 's value creators have performed better than investments in gold and crude, pleasantly surprising the market. In the past decade, assets like energy-related commodities and precious metals have given high-returns to investors. Investment in gold would provide an investor with a handsome return of 258 per cent, while crude oil returned 134 per cent.

Regional performance
Among different sub-sectors on Muscat bourse , the industry sector has been the best performing sector returning an impressive 115.2 per cent, followed by the service sector returning 69.2 per cent, also in line with the MSM 30 Index.

Irrespective of the maverick movement of the MSM 30 index, scaling up to 12,000 levels in mid-2008 and then falling by almost two thirds to 4,200 levels within a year, the MSM 30 index outperformed all the other major regional indices returning 69.6 per cent to the investor over a seven year period. "The return of the MSM was also in line with that of the MSCI Emerging Markets Index," it added.

The research also found that value creators, which have given maximum returns to the investors in the longer term, have in fact been the unpopular, small and mid-cap stocks, which is contrary to the general myth.

"Most of these stocks may not fit very well in a trader's short-term perspective. However, they have proved to be silent winners in the long term."

Most investors believe that frontline and large-cap stocks give superior returns compared to less liquid, small and mid-cap stocks. Blue-chips like these are also more popular with institutions, retail investors and traders alike and hence enjoy relatively higher liquidity.

Average daily turnover for the seven years from 2005 to 2011 more than doubled compared to that of 2004 and average number of regular market securities traded during the period also grew by more than a third of those traded during 2004.

© Times of Oman 2012