Egyptian and Emirati-listed companies are expected to lead strong growth in the third quarter, as both countries recover from their economic challenges.
EFG-Hermes expects Egypt to post 12% growth year-on-year and the UAE 14% during the same year. The Cairo-based bank also expects Egyptian companies to collectively post 18% growth quarter-on-quarter - the strongest in the region.
Meanwhile, quarter on quarter basis, Kuwaiti companies could rise 24.4%, Jordanian companies 32.1% while Saudi companies may post 8.3% growth during the quarter, according to the bank.
Across the 132 major MENA stocks EFG-Hermes researches, the bank expects a 6% rise year on year, with banks and telecom companies leading the way.
"Earnings for materials and industrials, the other two major sectors in our coverage, are forecast to contract by 16% and 20% Y-o-Y, respectively," notes EFG. "Aggregate earnings growth is flattered by a sharp Y-o-Y turnaround in Union Properties' (UP) earnings after losses in 3Q2011 - excluding the stock, earnings growth forecasts fall to 3.4% Y-o-Y (5.6% Q-o-Q)."
Interestingly, EFG expects a 175.1% increase in UAE real estate earnings year-on-year, although the sector will see earnings contract nearly 30% during the 3rd quarter, compared to last year, the bank estimates.
KEY Q3 RESULTS (Q-on-Q).
Saudi Arabia: Bellwether Sabic is expected to post 20% growth in earnings in the third quarter. It should be noted that Sabic missed most analysts' estimates in the second quarter by about 26%.
Al Hokair (89%) and Jarir Marketing (64%) are also expected to post impressive growth during the quarter.
However, most Saudi banks are expected see a drop in earnings in the third quarter, according to EFG-Hermes estimates, with Saudi Hollandi Bank forecast to show a 10% drop in earnings. Bank Al Bilad (9% growth) and Banque Saudi Fransi (6%) could be leading growth.
Interestingly, Dar Al-Arkan could see a 34% contraction in earnings during the quarter, as the mortgage law does little to improve the company's fortunes at least at the moment.
Egypt: Elsewedy Electric could be the star performer posting potentially 326% growth during the quarter. The company posted mixed results last year with strong EBITDA performance, which offset forex losses.
Other key companies like Orascom Telecom could see earnings growth of around 62%, while GB Auto (66%) and Oriental Weavers (55%) could also see stellar growth.
However, banks and real estate companies could suffer as the country's economy remains uncertain amid slow growth.
Commercial International Bank (-6%), Credit Agricole Egypt (-13%) and National Societe Generale Bank (-15%) are expected to fare poorly during the quarter as the private sector suffers.
Meanwhile, real estate developers such as Talat Mustafa Group, SODIC and Nasr City Housing will continue to suffer surrounding political uncertainty and economic lethargy in the North African country.
UAE: UAE listed companies will continue to recover, as the economic environment improves in the country. This recovery will potentially be led by Air Arabia, which could post a 131% growth during the quarter. This is also evident as companies such as Tabreed (24%) and Tamweel (24%) could see growth after being tested quarter after quarter over the past few years.
Banks are expected to see muted or flat growth as they continue to work their way the Dubai Inc. and real estate exposure. Emirates NBD could post an 8% growth during the quarter, EFG estimates, while National Bank of Abu Dhabi could see a 5% decline in growth in the quarter, compared to the same period last year.
Emaar Properties (-22%) and Union Properties (-83%) could also see earnings growth decline, highlighting the real estate sector continues to suffer despite the buzz surrounding the sector's recovery.
NCB CAPITAL ESTIMATES
NCB Capital forecasts a 6.1% earnings growth for Saudi stocks collectively during the third quarter.
"For the stocks under our coverage in the Saudi market (around 92% of total TASI net income), we expect 3Q12 net income to record a YoY decline of 4.5% to SR23.6bn from SR24.7bn in 3Q11," notes the bank.
The bank expects the Kingdom's petrochemicals sector to fare poorly, due to lower selling prices.
"We expect a 4.3% QoQ increase in net income as 2Q12 net income was negatively affected by shutdowns," notes NCB, adding that Sabic's is forecast to post net income of SR5.3bn in 3Q12, down 35.6% YoY and down 0.6% QoQ.
However, telecom companies will fare much better, offsetting some of the disappointment surrounding petchem companies.
"This significant increase is mainly from STC given it reported SR779mn in FX losses and SR433mn in miscellaneous expenses during 3Q11 which we do not expect to repeat on a similar scale in 3Q12. The YoY fall in losses at Zain KSA will also aid the YoY net income growth for the telecom sector."
The Saudi banking sector is forecast to fall by around 8% during the quarter, as trading volumes in the markets and contracting net interest margins take their toll on the sector.
"We believe the results expected in 3Q12 supports our strategy in preferring the locally driven and defensive stocks over globally exposed names," notes the bank.
SICO'S ESTIMATES
SICO expects GCC-listed companies to post a meager 1% growth during the quarter, although year-on-year the companies could post 13% growth.
The Bahraini bank expects Saudi banks to show a decline in Q3 on lower trading related fees and higher funding costs.
"Among UAE banks, ENBD and ADCB are to benefit from lower provisioning charges, while stronger operating income would lead FGB's strong expected earnings growth. In general, the UAE banks' profitability will be also boosted by lower cost of funds."
However, SICO's prediction for the Saudi petchem sector is in sharp contrast to NCB Capital's estimates.
"Petrochemical companies' earnings are expected to increase 11% QoQ, yet, decline 4% YoY due to weak commodity chemical prices," said the bank in a note to clients. "On a quarterly basis, we expect relatively better performance due to improved volumes on the back of recovery in utilisation rates. We expect SAFCO, Sipchem, and APC to report QoQ profit growth, supported by lower 2Q12 profits, which were affected by maintenance shutdowns during 2Q12."
Other key SICO predictions:
"In the telecom sector, STC is expected to report strong earnings growth (62% YoY,) in 3Q12, led by higher operating efficiency and broadband growth. Etisalat is expected to report a gain of AED 750mn in 3Q12 from its stake sale in XL Axiata, whereas Zain's earnings are likely to be impacted from Sudan's currency devaluation and higher ownership (37% now from 25% earlier) in its loss making associate Zain-KSA."
"Real estate - with the exception of Emaar, DAAR, and Akaria - are expected to report a YoY profit decline in 3Q12 mainly driven by a high base in 3Q11, led by one off asset/land sales. Among contractors, Arabtec and DSI are likely to announce weak YoY 3Q12 profit growth."
"Saudi consumer companies are expected to report low YoY earnings growth in 3Q12 due to a high base in 3Q11 and likely margin compression. Almarai is expected to report higher YoY earnings while Othaim and Jarir are likely to report declining profits."
CONCLUSION
Volatile oil prices and Ramadan could mean that the region's third quarter results could be lukewarm. The economic programmes in various regional countries are slowly trickling into the system and there are generally more signs of recovery than there are signs of decline that could bode well for the regional economy and the growth prospects of regional companies.
Egyptian, UAE and even Kuwaiti markets seem to be on their way to recovery, but the Lebanese and Jordanian companies are under the shadow of the civil war in Syria, which is impacting sentiment in that part of the region.
Meanwhile, Saudi, Qatari and Omani companies are posting solid, although not spectacular growth. Given the global economic uncertainty and regional tensions that still prevails in parts of the MENA region, it may be too much to expect a stellar quarter.
© alifarabia.com 2012
