UAE stocks hold growth potential despite uneasy investment climate
Despite the prevailing uncertainty among investors and institutions, UAE stocks continue to remain dependable bets, say most equity research analysts.
All the stocks identified for this year have been estimated to offer more than 20 per cent annual returns.
Al Dhafra Financial Broker has listed its top-10 picks for the year. The list includes Arabtec, Air Arabia, Aramex, Dubai Islamic Bank, Emaar, DSI, Aabar, etisalat, Aldar and Sorouh. Al Mal Capital's focus list of 2010 includes Aabar, Agthia, Aldar, DSI, etisalat and NBAD.
Vyas Jayabhanu, Head of Al Dhafra Financial Broker, told Emirates Business: "Every stock has the capacity to grow 25 per cent on average this year from the beginning of the year. The banking sector is down, though, and bad debts on their balance sheets are still affecting the performance of the banks. The first quarter will be crucial for them, as they need to generate business – particularly new business. We anticipate a difficult year for the banking sector. They have money, but whom should they lend to? Identifying potential customers will be a challenge for the banking sector.
"The year 2010 will also be a testing year for the real estate sector as no company has taken up new projects. Moreover, real estate companies need to complete their existing projects. Key factors, such as earnings in the fourth quarter of 2009 and the first quarter of 2010, Dubai World's net payment and the Tamweel and Amlak merger situation, will impact the trading pattern this year."
Fundamentally strong UAE companies figure prominently in the top-10 hot picks for 2010 from the GCC region. Al Ramz Securities has picked its top-five for 2010, which are DSI, Agthia, NBAD, etisalat and Emaar.
MAC Capital Advisors' top-10 for 2010 includes Air Arabia, Aldar, Aramex, Arabtec, Aabar, Agthia, du, Dana Gas, DP World and NBAD.
Six UAE-based companies figured in the model portfolio on GCC markets for 2010 prepared by Credit Suisse. Based on the performance of 16 companies from the region, the model portfolio includes DFM, Arabtec, FGB, UNB, Aldar and Sorouh from the UAE in addition to Sabic, Al Rajhi Bank, Commercial Bank of Qatar, Doha Bank, Almarai, Savola, Samba Financial, Qtel, Mobily and Saudi Telecom.
After Sabic, which got a 15 per cent portfolio weight, DFM has been given the second highest weightage of 10 per cent. Indicating the significance of the UAE markets, overall six UAE companies have 37 portfolio weightage.
Six UAE companies figure in Al Mal Capital Research's focus list for 2010 on the region. Al Mal's list includes Aabar, Agthia, Aldar, Doha Bank, DSI, etisalat, Etihad Etisalat, NBAD and Riyad Bank.
Drake and Scull International
Ever since it was listed on the DFM in March 2009, Drake and Scull International (DSI) has been an active scrip among retail investors and institutions. Shuaa Capital has estimated that DSI would post a Dh87 million net profit for the fourth quarter of 2009, while Sico Investment Bank forecasts Dh77.30m. Al Ramz Securities forecasts Dh1.25 as the target price for the DSI stock this year.
"DSI's balance sheet strength, with over Dh750m in cash in the current business environment, and its aggressive expansion plans and diversified backlog, make it one of the most attractive construction companies in the sector," said Hassan El Salah, senior sales trader for Institutions Division at Al Ramz Securities.
"Agthia took the support near the 50-day moving average on the weekly chart and stands bullish. The stock will now face some resistance near Dh1.93, which is the 14-day moving average, and, if it manages to cross that level, there could be a further rise until the long-term trend line resistance of Dh2.45 in the medium term. A close below the 50-day moving average of Dh1.62 will negate our bullish expectations. The stock is moving higher taking good supports on the rising trend line, as shown on the weekly chart," said Shiv Prakash, Technical Analyst at MAC Capital.
Al Ramz Securities has projected a Dh2.45 target price for Agthia. "Agthia, a defensive play, enjoys relatively inelastic demand of items such as water and flour, which contribute to over 70 per cent of the top line. Capacity expansions are also panned in the next three years to increase both flour production and water capacity. The company's growth prospects are favourable as it considers entry into the local dairy and poultry segment to diversify its revenues," said El Salah.
The National Bank of Abu Dhabi (NBAD) is high on forecast lists of different investment analysis firms. Al Mal Capital forecasts a Dh873m net profit for the bank for the fourth quarter of 2009 with a growth rate of 77.44 per cent as against its Dh492m net profit in the corresponding period of 2008.
Al Ramz Securities has estimated that NBAD has a growth potential of 24.93 per cent for this year as the target price has been estimated at Dh14.68.
"NBAD enjoys strong governmental deal flow, has diversified sources of revenues and a strong capital base implying high loss absorption capabilities. The bank has been able to avoid two of the biggest issues related to the local banking industry, the Dubai World, and the Saad/Gossaibi debacle, and one third of the loan book consists of government and public sector loans which have proved to be stable, allowing reasonable visibility into future earnings," said El Salah.
Shiv Prakash said: "NBAD on the weekly chart is trading below the long-term trend line resistance and is also trading below the resistance of 14-day moving averages. It can see a corrective fall until Dh11.70, which is the 50-day moving average support on the weekly chart. The stock can be bought near the said supports of Dh11.70 for a good bounce until Dh14.45 as the first target and then can test the previous highs of Dh20 in the medium to long run. A close below the supports of Dh10 will negate our bullish expectations."
With an average estimated growth of 60 per cent in net profits for the fourth quarter of 2009, etisalat holds positive forecasts from different investment analysis firms. The average net profit projected for the quarter stands at Dh2.27 bilion as against Dh1.41bn in the fourth quarter of 2008.
Al Ramz Securities has estimated the etisalat stock could touch Dh14.39 this year. "Etisalat's consistent dividend payment policy, strong financial position and diversified geographical footprint, along with its abundant liquidity make it an attractive UAE telecom company. With Dh10bn in cash, the company is currently exploring opportunities in Lebanon and Syria, and is also bidding for licences in Libya and looking to acquire licences in Iraq," said El Salah.
Jayabhanu said: "Etisalat is a stable and attractive stock, as the company announces bonus shares."
Emaar, the market bellwether for the UAE, is riding high on forecast charts. Investment firms have given a positive outlook for the company's performance in the fourth quarter and are upbeat about revenues in 2010.
Al Ramz Securities has estimated the target price for Emaar at Dh5.10. "Emaar's overall contribution from its international business has almost doubled in the past year. With deliveries expected in Saudi, Syria, Egypt, Pakistan and Morocco by 2011, this contribution will only increase. The company also has a recurring income base from rentals and the hospitality business, and given a gradual global recovery, its revenues from its hospitality and retail business should improve. The top line is also further supported from the handover of the Burj Khalifa expected in the first three quarters of 2010. In addition, Emaar enjoys positive operating cash flows and ample liquidity to meet short-term requirements," said El Salah.
Aldar Properties is the largest master developer in Abu Dhabi. Aldar's share price has rallied strongly from lows of Dh1.93 until the recent highs of Dh6.53 largely on the back of improving market sentiment. Abu Dhabi is expected to continue investing in the development and modernisation of the city despite the current economic downturn, said Shiv Prakash.
"Aldar Properties, with its close government ties and high share of Abu Dhabi-based projects, plays an integral role in planning and development within the emirate. Thus, one can invest in the long-term growth story of Aldar," he said.
"On the technical charts, the Aldar stock has good supports near Dh4.80/4.40 where some accumulation can be seen. A breakout on the trend line resistance of Dh5.45 can trigger an upward rally until Dh7.00/8.50 in the coming months."
Air Arabia is a low-cost carrier operating a total fleet of 20 Airbus A320 aircraft and serves 44 destinations within the Middle East, North Africa, Europe and the Indian sub-continent. Air Arabia's highly anticipated third hub in Egypt provides a strong link between the existing Moroccan and Sharjah hubs.
"The Egyptian location of Air Arabia also opens up routes to Eastern and Continental Europe, and also provides capacity for the Northern Africa and the 'stan regions. The financial year 2010 earnings are likely to improve as global growth looks to be stabilising with the Moroccan hub beginning to contribute to earnings," said Shiv Prakash.
"On technical charts, the stock has rock bottom supports near Dh0.80 and despite massive sell-off in the last few weeks the stock did not break below the range. This gives a good buy opportunity with the higher targets of Dh1.15/1.25 in the coming months. Air Arabia can also pay a dividend of up to Dh0.08 per share for FY10 or a nine per cent yield on current prices," he said.
"Aramex is trading in the higher range, and the fact that there has been no effect on it of the sharp fall in the markets seen in the recent past indicates that there is strength in the stock. Any rise in the markets can trigger a fresh upward rally until the higher target levels of Dh2.50 in the coming months. The strong supports come at Dh1.40 and the immediate resistance comes at Dh1.80. The stock also expects a dividend of Dh0.046 per share and promises good earnings growth for 2010," said Shiv Prakash.
Jayabhanu said: "Since logistics operations are an ongoing business, Aramex figures among our top-10 stocks for this year."
"Arabtec has seen a good recovery from the January 2009 lows of Dh0.78 to the highs of Dh3.78, giving massive returns. The stock is currently trading near Dh2.66 and holds good potential for further appreciation in 2010," said Shiv Prakash.
"If we see any close above Dh3.10, the Arabtec stock can see another rally until the highs of Dh4.50 in the coming months. The strong supports for the stock come at Dh2.15 where some accumulation can be seen. A close below Dh2.00 will negate our bullish expectations."
Jayabhanu added: "Because of Aabar's offer to buy a 70 per cent of stake in Arabtec, the Dubai construction major will get exposure to the Abu Dhabi market."
"After a steep fall from the highs of Dh2.74 to the lows of Dh0.53, Dana bounced higher and retraced almost 38 per cent from the lows and touched Dh1.30. The stock is trading at Dh1.03 with immediate resistance near the 14-day moving average of Dh1.07. A close above this will trigger another rally until Dh1.38 in the coming sessions. MACD on the weekly chart is gradually turning positive which indicates a further price appreciation," he said.
"Aabar on the weekly charts is trading above the 14 and 50-day moving average and is nearing the next resistance levels of Dh2.75 in the coming sessions. A break above the trend line resistance will enable the stock to target the next resistance level of Dh3.50 in the coming months. MACD is also about to give a positive crossover, which can lift the stock higher. A close below Dh1.75 will negate our bullish expectations," said Shiv Prakash.
Jayabhanu said: "Aabar is a cash rich company with exposure to diverse business segments. Since it has offered to buy a majority stake in Arabtec, the Dubai-based property major has also turned out to be attractive for the market."
"Emirates Integrated Telecommunication Co (du) is trading on the weekly chart near its channel support with a 50-day moving average. It is currently trading near Dh2.98 and can have a bullish rally until the next targets of Dh3.50/4.75 in the coming months. One can buy now and add further on lower levels near Dh2.75. A break below Dh2.55 will negate our bullish expectations," said Shiv Prakash.
DP World, which was trading in a thin range, broke out above the 14 and 50-day moving average. This signals a buy with a bullish crossover of the moving average. The bullish rally looks to continue until the channel resistance of $0.60 in the coming sessions where some profit taking can be seen. MACD is moving in the positive territory with the stock trading above the trend line resistance. "It looks positive and any breakout on the resistance levels of $0.60 can trigger another upward move until the neckline resistance levels of $0.80. Lower support for the stock exists at $0.47," said Shiv Prakash.
Top picks of 2010
MAC Capital Advisors
Scrips Price(Dh) PriceTarget(Dh) Growth Potential (%)
Air Arabia 0.90 1.25 38.89
Aldar 4.63 8.50 83.58
Aramex 1.61 2.50 55.90
Arabtec 2.41 4.50 86.72
Aabar Inv. 2.38 3.50 47.05
Agthia 1.83 2.45 33.87
DU 2.90 4.75 63.79
Dana Gas 1.00 1.30 30.00
DP World $0.50 $0.80 60.00
NBAD 11.75 14.45 22.97
Al Ramz Securities
Scrips Price(Dh) PriceTarget(Dh) Growth Potential (%)
DSI 0.84 1.25 48.80
Agthia 1.83 2.45 25.30
NBAD 11.75 14.68 24.93
Etisalat 11.10 14.39 29.63
Emaar 3.52 5.10 44.88
Al Mal Capital
Scrips Price(Dh) PriceTarget(Dh) Growth Potential (%)
Aabar 2.38 3.00 26.05
Agthia 1.83 2.40 31.14
Aldar 4.63 7.00 51.18
DSI 0.84 1.23 46.42
Etisalat 11.10 16.60 49.54
NBAD 11.75 16.90 43.82
Al Dafra Financial Broker
Scrips Pr Close (Dh)
Air Arabia 0.90
Dubai Islamic Bank 2.20
Avg expected return is 25%
Scrips Pr Close (Dh)
First Gulf Bank 16.05
Union National Bank 2.87
Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.
Follow Emirates 24|7 on Google News.