Listed Gulf companies are expected to post a median profit growth of 23 per cent in the first quarter of 2008.
This is the key finding of a report by Saudi-based NCB Capital, which collated the various forecasts of analysts from across the region. Profit growth is expected to slacken in the remainder of 2008, leading to annual profits rising by an estimated 16 per cent this year compared to the year before. These predictions are of course limited to companies under the scrutiny of analysts. Coverage of Gulf stocks remains sporadic, with broker research available for just 72 of the region’s 827 listed companies, while only 12 have at least three brokers providing earnings forecasts.
The UAE, Saudi Arabia, Kuwait and Oman should report net income growth of between 15 and 30 per cent for its listed firms in the first quarter of 2008, while the outlook for Bahrain, Qatar and Egypt is unclear because of limited coverage and exceptional items, NCB says. Oman will fare the best in the first quarter, with net income surging 29 per cent, followed by the UAE with 23 per cent growth, while the figures for Saudi Arabia and Kuwait are forecast to be 20 and 18 per cent respectively.
The net income of Qatari firms is actually poised to shrink by six per cent in the first three months of 2008, although NCB blames this on the low coverage of the emirate’s companies, which render this number unrepresentative of the wider market.
The vitality of Gulf companies is likely to lessen over the remaining nine months of 2008, the NCB figures reveal, with Oman forecast to report annual net income growth of 15 per cent for the full year, compared to 26 per cent for the first quarter.
NCB does not say whether this fall in income growth is because of lower revenues in the remainder of 2008 or if the larger rise in quarter one income growth was down to unusually low figures for the first quarter of 2007 compared to the rest of last year.
Meanwhile, Qatar is poised to shrug off negative first quarter income to post a full year rise of 35 per cent, but UAE growth will slow to 21 per cent. Saudi’s income growth will also shrink between the first quarter and remainder of 2008, from 20 to 12 per cent.
NCB lists the 15 Gulf stocks with the lowest price to earnings ratio, based on 2008 estimates, excluding companies with a market capitalisation of less than $1 billion.
The best value is Kuwait’s Invest Dar, with a p/e of 5.9, while Kuwait logistics giant Agility is second with a valuation of 6.5. Third place goes to Aldar Properties, which has a 2008 p/e of 7.5, while Emaar’s valuation of 9.2 also enables it to make the top five.
Abu Dhabi Commercial Bank and Tamweel are the other UAE stocks listed, with p/e ratios of 11.4 and 11.8 respectively.
The Gulf retail and transportation sectors will increase their earnings by more than 40 per cent in 2008. These groupings also include logistics, consumer goods and consumer services. The energy and real estate sectors will grow by 35 and 34 per cent respectively. Finance will lag behind in comparison, increasing earnings by just nine per cent this year, while telecoms will record a 23 per cent rise.
Interestingly, NCB also compares the deviation in analysts’ forecasts. For all bar four companies this figure is less than 20 per cent.
The Dubai Financial Market provides the widest difference of opinion among brokers, with a standard deviation of 54 per cent. This could be because the DFM derives more than 90 per cent of its revenues from trading commissions. Therefore, its profits are dependent on market turnover, which is notoriously volatile and often influenced by events far beyond the company’s control, as witnessed by the slump in first quarter trading amid global panic over a likely United States recession.
Aldar Properties’ standard deviation was 36 per cent, while Air Arabia’s was 19 per cent.
“The high standard deviations in expectations indicate high variances in opinion amongst the analysts tracking the stock with regards to the likely results that are expected to be announced,” the NCB report states.
“This could lead to volatility in the share price ahead of the results announcements.”
Across the Gulf, UAE stocks will dominate the list of fastest-growing companies in the first quarter of 2008, according to estimates.
Sorouh Real Estate is top with earnings forecast to grow 233 per cent, while Tamweel is second with 203 per cent and Arabtec third with 196 per cent. These three companies are all related to the UAE’s voracious real estate market and are also among the country’s most active stocks, which shows investors seem to be targeting the correct sectors, at least for now.
Interestingly, this trio fare much worse when full year forecasts are considered. For example, Sorouh annual growth is expected to be 37 per cent, placing it ninth on a list of the Gulf’s fastest growing companies, while Tamweel slumps to 13th with earnings rising 29 per cent this year. Arabtec does not make the top 15.
The UAE and Saudi markets are the most comprehensively covered by broker analysis, with 70 per cent of the Emirates’ listed companies under scrutiny, while 63 per cent of the firms on the Saudi Tadawul can also claim this distinction.
Kuwaiti coverage is surprisingly low at 52 per cent, considering its market capitalisation is $213 billion, making it similar in size to the combined UAE markets. Two-thirds of Oman’s publicly traded companies are covered by brokers, while for Bahrain and Qatar this figure is just 13 and six per cent respectively.
Listed firms set to post growth of 23% in Q1