GCC Equities Review: Dubai the worst performer as property shares slide

Energy stocks boosted by higher oil prices but concerns over Dubai's housing market drags down real estate firms

  
An investor looks up at electronic boards displaying stock information at the ADX Abu Dhabi Securities Exchange stock market. Image used for illustrative purpose.

An investor looks up at electronic boards displaying stock information at the ADX Abu Dhabi Securities Exchange stock market. Image used for illustrative purpose.

REUTERS/Ben Job

Trading in stocks listed both in Dubai and Abu Dhabi slumped during the first half of the year as investors who would normally be buying its shares opted for potentially more lucrative returns elsewhere. Data from Thomson Reuters Eikon showed that trading volumes in both of the equity markets in the United Arab Emirates remained weak, with the Dubai Financial Market down 55 percent in volume terms in the first half of the year, while volumes of trades on the Abu Dhabi Securities Exchange dropped by 49 percent.

Mohamad Al-Hajj, vice-president and head of MENA strategy at EFG Hermes, said the decline in volumes was mainly a result of “a lack of catalysts” spurring investment.

“If we look at the macroeconomic fundamentals and even the valuation, the UAE is the most attractive from a valuation perspective. Dubai is trading at 7x forward earnings and a 6 percent dividend yield, and that is a valuation it was trading at when oil was around $27 a barrel,” he said in a telephone interview.

Al Hajj argued that “if you are a long-term investor, there is definitely a lot of value in the UAE”.

Mahitab Ashmawi, a vice-president at Dubai-based Al Masah Capital, said that although the UAE markets were “under pressure” in the first half of this year, the fact that many stocks are now trading at discounts to regional peers made them more attractive, especially in sectors with strong fundamentals, like banking and real estate.

He added that several new government initiatives announced by the UAE’s Federal governments and individual emirates will trigger investor interest.

New initiatives announced by UAE rulers include the relaxing of visa rules and on foreign ownership of onshore companies, with 100 percent ownership soon to be allowed for the first time. Moreover, a 50 billion dirham ($13.6 billion) economic stimulus package announced by Abu Dhabi’s Crown Prince Sheikh Mohammed Bin Zayed Al Nahyan could also boost economic growth, and thus feed into some of the companies listed in UAE markets, but Faisal Hasan, head of investment research at Kuwait Asset Management Company (Kamco), said that details of the investments being made “are still yet to be determined”, meaning the period between announcements being made and equity markets benefitting could be lengthy.

In terms of the outlook for UAE markets, Hasan told Zawya in an emailed response to questions that “we do not see a huge market-wide reversal on the cards in 2018, as fundamentals need to clearly improve”.

“Having said that, the decline on the exchange has resulted in some high quality names being available at reasonable prices, and advice remains stock-specific,” he said.

Abu Dhabi

The index gained 2.7 percent during the first half of the year, but this masked some big swings in the fortunes of its constituent companies – not least the energy firms benefitting from the 19.3 percent upswing in oil prices during the first six months of the year.

Abu Dhabi National Energy Company, Taqa, saw its shares more than double in value during the period, while the National Takaful Company, Watania, witnessed a 62 percent increase in its share price. In March, the Islamic insurance firm reported that it had achieved a 36 percent year-on-year growth in gross written contributions during 2017, which was matched by a leap in net profit to 7.6 million dirhams ($2.1 million), from just 400,000 dirhams a year earlier. This was followed up in May by the company reporting a 78 percent year-on-year increase in written contributions for the first quarter, meaning profits jumped to 3.6 million dirhams for the three-month period, compared with 33,000 dirhams in the same period a year earlier.

The company which witnessed the third-biggest gain in its share price was Dana Gas, the Sharjah-based natural gas supplier. Its shares climbed by 31.7 percent, and produced much of these gains late in the first half after announcing in June that it had gained agreement for a consensual restructuring of a $700 million sukuk, which it had previously said was no longer valid as it was deemed not to be shariah-compliant, leading to court cases both in the UAE and the United Kingdom as creditors sought to assert claims.

Vijay Valecha, chief market analyst at Dubai Financial Brokers, said that the restructuring, which was agreed on June 21, provides “a satisfactory solution to the issues revolving around the company’s capital structure and the uncertain legal position of the sukuk”.

“With oil and gasoline prices expected to remain high in 2018 as well, Dana Gas is expected to sustain its performance in 2018,” he said.

Abu Dhabi

Gainers

1. ABU DHABI NATIONAL ENERGY (TAQA) 105.36%

2. WATANIA 62.22%                

3. DANA GAS 31.65%                

Losers

3. GREEN CRESCENT INSURANCE -43.16%

2. UNITED ARAB BANK -31.67%

1. RAK POULTRY -44.41%

Dubai

The first half of 2018 proved particularly gloomy for investors in most of Dubai’s listed companies, as the index was the worst performer in the region, registering a decline of more than 15 percent. The market was weighed down by the performance of its real estate and construction companies, with concerns about a potential looming oversupply of residential properties dragging down stocks such as Emaar Properties, Union Properties and Damac Properties.

Theme parks operator DXB Entertainments continued its downward spiral, with its shares declining by 48 percent, despite the company announcing on Sunday, 15 July that visitor numbers to Dubai Parks and Resorts increased by 46 percent in the first half of the year to 1.4 million. The firm has continued to lose money, despite cost-cutting exercises, and its closing share price of 34 fils on Sunday, 22 July is 79 percent below its peak of 1.64 dirhams in September 2016.

Retailer Marka also saw its share price plunge as the company announced it would seek a capital reduction in order to wipe out accumulated losses, which stood at over 458 million dirhams at the end of March. Its stock fell in value by 51 percent in the first half.

The worst performer in the year-to-date on the Dubai market, however, was Drake & Scull. A 500 million dirham capital injection by private equity company Tabarak Investment towards the end of last year was meant to shore up its balance sheet, and the company reported making a small profit of 16 million UAE dirhams (in the first quarter of 2018.

However, Selima Mrabet, an analyst with Tunisia-based Alphamena, said the company had undergone an “illusionary rally” late last year which reversed this year after the company said it planned either to issue new shares or convertible bonds in a bid to bring in more cash.

“In our view, the contractor’s heavy indebtedness (2017 gearing at 330 percent and expected to be at 387 percent in 2018) will cause further pressure and make the stability achieved during Q1 2018 hard to keep,” Mrabet said in response to an emailed question from Zawya.

Mrabet said that although the company has “played the cost reduction card well”, what it really needs to do is to start generating positive cashflow from operations – something it has not managed since 2014. Moreover, revenue has continued to decline, and its backlog of 5.4 billion UAE dirhams at the end of March was its lowest level for seven years.

“DSI needs to improve its business efficiency by accelerating project bidding and winning new awards,” she said.

Few firms listed on the Dubai market witnessed an upturn in value during the first half, although Emirates NBD, which bought Turkey’s Denizbank from Russia’s Sberbank for $3.19 million during the period, was an exception. Its shares increased by 19.4 percent during the period, as several UAE-based banks reported improving profits due partly to higher interest rates, but also lower loan provisioning.

Emirates NBD itself reported a 29 percent increase in year-on-year net profit on Wednesday, 18 July, earning just over 5 billion dirhams for the six-month period.

“ENBD rallied following the announcement that it is looking to raise its foreign ownership limit,” Chiradeep Ghosh, a an analyst covering the banking sector from SICO Bahrain explained, adding that it had previously traded at a deep discount to peers due to the lack of opportunities available to foreign investors to own the stock.

Financial services firm Alvarez and Marsal also said on Sunday, 15 July that nine out of 10 UAE banks improved their return on equity in the first quarter as a result of both a decrease in the cost of risk, and a fall in operating expenses.

Dubai

Gainers

1. EMIRATES NBD 19.39%

2. DUBAI NATIONAL INSURANCE & REINSURANCE 14.38%

3. NATIONAL GENERAL INSURANCE 7.69%

Losers

3. DXB ENTERTAINMENTS  -48.36%

2. MARKA -51.50%

1. DRAKE & SCULL INTERNATIONAL -66.53%

Click through the links below read how markets in each country fared.

Bahrain

Kuwait

Oman

Qatar

Saudi Arabia

(Reporting by Michael Fahy; Editing by Shane McGinley)

(michael.fahy@thomsonreuters.com)

Our Standards: The Thomson Reuters Trust Principles


Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2018

More From Equities