The bullish trend that is prevailing in the market augurs well for the disinvestment plan
Gulf Investment Services
The government announced the 2006 budget with an estimated expenditure of RO4.237bn and revenue of RO3.587bn, leaving a deficit of RO650mn. This is in comparison to an estimated surplus of RO1.4bn recorded in 2005. The budget is estimated to have been based on an oil price of US$32 per barrel. This is far too low compared to the average price of US$48.4 per barrel in 2005 and current levels of US$67 per barrel. The strategy adopted by OPEC in containing the prices and the enlarging demand suggests that the government could still see its treasury swelling in 2006.
The highlight of the budget pronoun-cement is the rise in the 'capital expenditure' and 'participation and subsidies'. While the current expenditure has been budgeted to rise by five per cent from previous budget, the project expenditure is expected to rise by a phenomenal 28 per cent and participation and subsidies to reach RO228mn. This clearly charts a road map where the government is serious in its development programme. The parallel strategy of reducing the debt burden as well as enhancing its capital expenditure plays well for the sustenance of growth that is the need of the hour.
In its Seventh Plan, the average economic growth is projected at three per cent compared to an average growth of 8.7 per cent in its Sixth Five Year Plan. But the emphasis has been given to the non-oil activities which are projected to grow at 7.5 per cent. The thrust given to the non-oil sector augurs well for reduction of the volatility in its performance as oil prices are under the control of the external influences.
The government, as part of its privatisation plan, has decided to divest its stake in Oman Flour Mills, Oman Fisheries Company, Oman Chromite, Golden Tulip Hotel and Oman National Transport Company. The disinve-stment would not only allow the companies to chart their own course and improve their commercial acumen, but also enable the government to fund its deficit.
This process would also enhance the free float in the Muscat Securities Market (MSM) and also increase its capitalisation. The bullish trend that is prevailing in the market augurs well for the disinvestment plan. As part of the process to integrate the regional markets, Muscat Securities Market and Abu Dhabi markets took the historic step of linking its system. This enables the investors across the borders to trade in either of the market. This could well be the precursor to the ultimate integration of all the markets in the region.
The prevailing healthy economic scenario and government's policies and reforms have enthused the Muscat Securities Market. After closing the year 2005 with a phenomenal return of 44.45 per cent, the markets were in a buoyant mood in the New Year. While the party started in the later part of December'05, the real volume backed bullish fervour was visible in January'06. With the regional markets showing a mixed trend owing to stretched earnings multiple, the new regional funds started pouring into MSM.
The benchmark MSM30 reported a return of eight per cent from mid December to mid January, of which five per cent was recorded in January 2006. The banking sector was the out performer with a gain of 8.9 per cent.
While the gains in industrial sector were slightly lower at 7.9 per cent, service sector was further lower at 6.2 per cent. As mentioned above, the activity in the market too showed a marked improvement with the turnover cros-sing RO100mn during the period under review despite the Eid holidays.
Among the corporates that vitalised the market are Oman & Emirates, Muscat National Holding, ONEC and Transgulf. In the banking sector, Oman International Bank made a smart move by jumping 16.5 per cent. Among the industrial sector, Raysut Cement announced the acquisition of a supply contract for 200,000 tonnes of cement to the Port of Salalah towards its expansion programme.
This was welcomed by the market with a gain of 2.3 per cent. The board of directors of Oman Chlorine was the first one to declare dividend for the year 2005. It has proposed to distribute a cash dividend of five per cent and a stock dividend of 10 per cent.
The company, which is planning for a new plant and a major capital expenditure in 2006 in its existing unit, has proposed a higher stock dividend and lower cash dividend. The stock returned 20 per cent during the period under review. The board of directors of Al Anwar Holdings has decided to mobilise RO2.750mn by way of a rights issue in March 2006. This is planned to cater to investment in its insurance venture and ceramic manufacturing unit.
Apart from the various news that were doing rounds about increase in capacity and restructuring, some cross-border and local acquisitions took place. While Oman Fiber Optic Company has decided to acquire 20 per cent stake in Omani Electronic Trading Company, Dubai's Shuaa Capital is in the process of increasing its stake in ONIC Holding to 35 per cent.
The market was also ringing with rumours of Gulf Air and Oman Air merging to form a largest airline in the region. These rumours propelled Oman Aviation by 24 per cent during this period. About 1.75mn shares exchanged hands, positioning Oman Aviation in the second spot among the volume gainers. Omantel, however, led the volume chart as well as turnover chart with its 41 per cent share in volume and 26 per cent share in turnover. It has been observed that the speculative interest as well as regional interest has been dying down in the stock and only traders remain in the stock. The 2005 year-end result is expected to change the status of the stock.
History repeats itself
As it was discussed in the previous issue, the January rally that we have been witnessing in the past three years emerged once again. The momentum is likely to strengthen, though with short-term technical correction. With the fundamentals still remaining strong, anticipation of generous dividend from the leading corporates is likely to drive the market higher in the first quarter.
Also, as we expected, BankMuscat and Renaissance have announced a proposal to split face value. This though does not mean any value addition directly. It would enhance the turnover ratio substantially and bring in more investor interest. The regional funds which were averse to invest in certain stocks due to its illiquid nature would now seriously look at it. This would prompt better earning multiple compared to its historic one. All in all, with structural reforms and corporate performance going hand in hand under a booming economy, the markets are likely to have a positive undercurrent.
© businesstoday 2006
