DP World declines 29% since listing

It was once billed as the listing that would put the Dubai International Financial Exchange (DIFX) on the map, but global ports operator Dubai Ports World has not lived up to the expectation.

While growth prospects for both the company and the DIFX are positive, early adopters may need to hold on for the long term if they intend to realise gains.

Muneeba Kayani, a Dubai-based analyst at Morgan Stanley, issued the firm’s first research note on DP World yesterday, rating the stock as hold (equal-weight-V) with a price target of $1.10. Shuaa Capital, one of the lead arrangers on the IPO, issued a report on January 7 (when DP World was trading at $1.21), with a buy recommendation and a fair-value target of $1.47.

But the investors on the DIFX do not share the analysts’ exuberance – DP World dropped 4.12 per cent to $0.92 yesterday, as more than $6.8 million (Dh24.9m) worth of shares were traded.

There are many reasons for the relentless downward pressure on the stock, said Walid Shihabi, head of research at Shuaa Capital.

He told Emirates Business the “overhang from the convertible bonds”, which the company issued in 2006, is one factor.

Another depressant has been the lack of news regarding DP World’s performance.

 

Investors have also been selling due to global market dynamics.
Foreign institutional investors, who constitute the majority of the shareholders, have dumped DP World shares due to the global market slump over the past six weeks.

Furthermore, Shihabi said: “We are seeing a trend in which dollar-denominated assets are being sold in favour of dirham-denominated assets due to speculation on the possibility of a revaluation,” which explains the local investor sell-off.

Morgan Stanley’s research referred to the high valuation of DP World as a main reason for the declining share price. “The bigger issue is ‘what multiple to pay’, given concerns over a global growth slowdown and the impact on infrastructure related stocks. In this regard, we think the stock’s valuation looks full,” he wrote in the report.

Kayani also noted the stock is trading at a 2008 P/E of 35, while its peer group trade at multiples of 24.1.

Shihabi does not use P/E ratios in his consideration of DP World because “earnings might be distorted by high levels of depreciation and amortisation”.

The high price of the stock was something that caught many investors off guard at the time of the listing. The IPO was priced at the top of its range at $1.30. According to a source who advised on the listing, the fair market value was estimated at $1.20 at the time of the IPO, eight per cent lower than the listing price. The source predicts the stock will continue to fall until investors believe a fair market value is reflected in the price.

 

Bumpy ride

$6.8m

worth of shares were traded at the DIFX yesterday, as DP World’s shares dropped 4.12 per cent to $0.92