Dubai-based courier Aramex has seen robust growth in core earnings in the year 2018, despite a macro slowdown in its core Gulf markets, a SICO report said.

Ayub Ansari, senior analyst at Bahrain-based bank SICO, said in a report seen by Zawya that Aramex is one of the few companies which have reported genuine growth in the region outside of the petrochemical and financials space this year.

The company had reported a nine-month net profit of 339 million UAE dirhams ($92 million) in 2018, compared to 271 million UAE dirhams for the same period last year.

Aramex’s nine-month 2018 revenue amounted to 3.66 billion UAE dirhams, compared to 3.4 billion UAE dirhams for the same period last year.

“ARMX (Aramex) has successfully diversified its revenue stream geographically; particularly in the Asia Pacific region which accounted for 25 percent of revenues in 9M18 (nine-month 2018),” the report said.

Ansari said that SICO maintains a “Buy” recommendation on the name and that “ARMX is trading at FY19 (fiscal year 2019) P/E (price-earnings) of 10.5x (10.5 times), 30 percent discount to its historic median P/E of c. 15x (close to 15 times) while offers a dividend yield of 5.5 percent which we believe is very attractive for a high growth name.”

The report also added that the stock provides an upside of 46 percent to SICO’s target price of 6.0 UAE dirhams per share.

The stock is now trading at 4.1 UAE dirhams per share and added 1.99 percent during Monday’s trading. Data from Eikon shows that the stock has dropped 4.65 percent so far since the start of 2018, but has outperformed Dubai’s stock market which has retreated 26. 99 percent during the year and fell 0.74 percent on Monday.

The stock market index in Dubai has been dragged lower this year by property stocks, which have performed badly due to a weakness in the real estate market. A Thomson Reuters index of UAE real estate shares has dropped close to 39 percent since the start of the year.

At the beginning of last week, Aramex announced to the exchange that its board of directors approved the sale of its 60 percent stake in its joint venture with Australia post (AP), “Aramex Global Solutions (AGS)”, to AP, for $20 million.

In 2016, Aramex and AP partnered to create AGS to serve as an e-commerce delivery platform, with a particular focus on connecting the Australian e-commerce market with sellers in Asia, the press release said.

The announcement attributed the decision to sell to “a mutually agreed transaction that will allow both organizations to independently execute their strategic growth in the booming global ecommerce industry.”

SICO’s Ansari said that Aramex will book a one-off loss of 48 million UAE dirhams ($13million) in the fourth quarter of 2018 on the stake sale, which represents 10 percent of SICO’s 2018 earnings estimate.

“Based on our discussion with the management – the stake sale follows strategy misalignment with Australia Post (AP) on the future growth plans of the JV (joint venture),” Ansari added.

“As per management, exit from AGP will have no bearing on AP’s existing 10 percent shareholding in Aramex and should also not impact the company’s future e-commerce growth prospects. Impact on recurring earnings will be negligible.”

Ansari added that he sees some headline risk from AP potentially exiting its 10 percent stake in Aramex, taking the recent exit of Aramex from the joint venture as a precursor to AP offloading its shareholding in Aramex.

“That said, assuming AP does sell its 10 percent stake - it will open up the foreign ownership space in the stock (currently at 47.5 percent against regulatory limit of 49 percent) and potentially improve liquidity in the name (Aramex).”

Elsewhere in the region, Abu Dhabi’s index edged 0.31 percent lower on Monday, Qatar’s index added 0.34 percent, Bahrain’s index edged 0.1 percent lower, while Kuwait’s premier market index was mainly flat and Oman’s index edged up 0.3 percent.

By 14:01 GST, Saudi Arabia’s index was trading 0.47 percent higher and Egypt’s blue-chip index EGX30 was 1.41 percent lower.

(Reporting by Gerard Aoun; Editing by Shane McGinley)

(gerard.aoun@refinitiv.com)

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© ZAWYA 2018