The Abu Dhabi Energy Company (Taqa) has been classified among the best five bargain stocks in the Middle East because of a sharp growth in its earnings during 2008 and its ambitious expansion plans.
The Kuwaiti Financial Centre (Markaz), a key regional investment and financial consultancy house, said the government-controlled firm ranked fifth as the most attractive stock in the region after the Saudi petrochemicals giant – Sabic, the Saudi Arabian Fertilizers Company, Saudi Telecom and Industries Qatar.
In a study about what it termed the "Bargain Opportunity List" of companies trading in the Middle East and North Africa (Mena), Markaz said the final list included 21 firms accounting for nearly 30 per cent of the market capitalisation in the GCC and other Mena stock exchanges.
The study said the final list included those companies, which are either large cap or mid cap in their respective exchanges, companies in sectors which are not financials or real estate, have at least a two-year history post listing, and good liquidity (value traded).
The list covered 10 different sectors and it included 56 per cent capitalisation from Saudi Arabia, while the rest is shared by the UAE, Kuwait, Egypt and Qatar.
Among the sectors, mineral resources companies form the majority of the companies in the bargain list, accounting for nearly 35 per cent. "Taqa is among the top five. It had an installed capacity of approximately 10,000 megawatts (MW) in oil and gas production, gas processing, natural gas storage and pipelines as of April 2008. The company's net profit jumped to $433.6 million (Dh1.59bn) in the first nine months of 2008 from around $103.8m in the same period of 2007 – an increase of nearly three times," the study said.
"Total revenues surged by 145 per cent to around $3.5bn from $1.4bn, driven by higher earnings from the oil and gas segment."
Citing Taqa's balance sheet, the report put its revenues from oil and gas at around $1.7bn in the first nine months of 2998 compared with only about $125.8m in the same period of 2007. It said the increase was primarily driven by the consolidated revenues of $1.3bn from the three acquisitions in Canada.
"Taqa plans to spend $2bn to $2.5bn over the next four to five years to increase its offshore production and purchase oil and gas reserves in the North Sea. The company also intends to increase its offshore oil output by 50 per cent, and aims to develop its oil and gas assets from the current $5bn to $20bn by 2016. Taqa is also planning to acquire energy companies struggling to deal with the global financial crisis," Markaz said in the report.
"The company expects these acquisitions [worth around $1bn] to culminate at the end of 2008. The acquisitions are likely to boost Taqa's downstream businesses further, as it plans to invest in power and desalination projects, and pipeline infrastructure in North America."
Taqa has a strong cash flow to net income ratio of 2.71 and the price to book value at the current prices is at 0.71.
"The dividend yield is at eight per cent, while the promoter holding in the stock is as high as 75 per cent," the report said.