Shareholders in Air Arabia are two-time losers. The stock was sold early last year as the price of oil soared, apparently in recognition that fuel accounts for much of an airline's costs. But when oil dropped out of sight after that, Air Arabia sank even faster and farther as investors seemed to conclude that business prospects in the oil-dependent Middle East would suffer. When sentiment toward a stock is so glum that all news is bad news, it's time to take inventory of the ways the company might not be getting its due. There are plenty in the case of the low-cost airline - enough to persuade several investment advisers that it will not remain a low-cost stock for long.
One of those is a rare commodity in business: a good idea at the right time. The skies above the western world are swarming with planes operated by budget carriers. They account for 23 per cent of available airline seats in the US and 27 per cent in Europe, according to an HSBC report. The corresponding figure for the Middle East and North Africa is a mere 4.5 per cent. That should allow Air Arabia to beat the national flagships, such as Emirates Airline, on price without getting into a dogfight with rivals trying the same business model.
As David Lepper, HSBC's head of UAE research and the report's author, sees it, the Middle East is fertile territory for budget airlines, particularly Air Arabia. The number of expatriates working in the Middle East - including a substantial majority of the UAE's population - is a steady source of demand, he noted. The bleak economic times work in the airline's favour, too, he said. They persuade passengers to switch to budget carriers, allowing them to increase market share.
Air Arabia, which has its main hub in Sharjah and flies to about 40 destinations, is also taking advantage of the grim backdrop to expand its fleet. With credit scarce and growth slow, it's a buyer's market, and when conditions improve and traffic picks up, Air Arabia will be well placed to cater to those passengers' needs. "Although the Middle East is set to face a challenging demand environment, we believe it should fare better than most, with established low-cost carriers likely to benefit from trading-down by cost-conscious consumers and also better regional economic metrics relative to other parts of the world," Mr Lepper writes.
"Carriers with a core focus on network, cost and asset base should outperform the market and the global sector." Air Arabia seems to be doing just that, as far as its financial performance is concerned. Earnings were 32.2 per cent higher in the first quarter, compared with the same period last year, as traffic rose 25.6 per cent. The average ticket price fell 3 per cent, but that's not bad considering all that happened in the world in the intervening year.
Shareholders apparently didn't get the memo. The stock got cut roughly in half over the same period, even as Air Arabia's business was blossoming. Mr Lepper expects that discrepancy to be reversed, at least somewhat. He has an "overweight" rating on the stock and a target price of Dh1.3, compared to its close on Tuesday Dh1.05. Andrew Light, Citigroup's global airline analyst, is also a fan. He has an equivalent "buy" rating and a target of Dh1.5.
Mr Light, in a report of his own, lauded Air Arabia for its "entrepreneurial and experienced management team" and expressed confidence in its ability to execute an ambitious programme to expand into Europe - a recently opened hub in Casablanca is a key to that part of the plan - as well as Central Asia and the Far East. So what could go wrong? Chronic economic weakness, especially if it leads to persistently lower oil prices, likely would hurt demand. Then there is the prospect of heightened competition.
Research by Penelope Butcher at Morgan Stanley, who has a neutral assessment on the stock and a Dh1.2 target, warns that Emirates Airline and some Indian carriers could cut fares and put pressure on Air Arabia. The imminent launch of another budget airline, flydubai, could have the same effect. Mr Light acknowledges some of these risks, and his report notes that he had the same buy rating on the stock all the way down from Dh2 or more early last year. But he maintains that the stock's losing streak reflects how the airline is perceived, not how it's run.
"Air Arabia was one of the most profitable airlines globally in 2007 and 2008," he said. "We expect its profitability to be upheld or even increased as it attracts more business travellers, achieves scale, reduces distribution cost and pursues profitable ancillary revenue opportunities." Conrad de Aenlle, who is based in Los Angeles, has covered business and investment topics for nearly 20 years.
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Name: Hassan Mohsen Elhais
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Zakat definitions
Zakat: an Arabic word meaning ‘to cleanse’ or ‘purification’.
Nisab: the minimum amount that a Muslim must have before being obliged to pay zakat. Traditionally, the nisab threshold was 87.48 grams of gold, or 612.36 grams of silver. The monetary value of the nisab therefore varies by current prices and currencies.
Zakat Al Mal: the ‘cleansing’ of wealth, as one of the five pillars of Islam; a spiritual duty for all Muslims meeting the ‘nisab’ wealth criteria in a lunar year, to pay 2.5 per cent of their wealth in alms to the deserving and needy.
Zakat Al Fitr: a donation to charity given during Ramadan, before Eid Al Fitr, in the form of food. Every adult Muslim who possesses food in excess of the needs of themselves and their family must pay two qadahs (an old measure just over 2 kilograms) of flour, wheat, barley or rice from each person in a household, as a minimum.
10 tips for entry-level job seekers
- Have an up-to-date, professional LinkedIn profile. If you don’t have a LinkedIn account, set one up today. Avoid poor-quality profile pictures with distracting backgrounds. Include a professional summary and begin to grow your network.
- Keep track of the job trends in your sector through the news. Apply for job alerts at your dream organisations and the types of jobs you want – LinkedIn uses AI to share similar relevant jobs based on your selections.
- Double check that you’ve highlighted relevant skills on your resume and LinkedIn profile.
- For most entry-level jobs, your resume will first be filtered by an applicant tracking system for keywords. Look closely at the description of the job you are applying for and mirror the language as much as possible (while being honest and accurate about your skills and experience).
- Keep your CV professional and in a simple format – make sure you tailor your cover letter and application to the company and role.
- Go online and look for details on job specifications for your target position. Make a list of skills required and set yourself some learning goals to tick off all the necessary skills one by one.
- Don’t be afraid to reach outside your immediate friends and family to other acquaintances and let them know you are looking for new opportunities.
- Make sure you’ve set your LinkedIn profile to signal that you are “open to opportunities”. Also be sure to use LinkedIn to search for people who are still actively hiring by searching for those that have the headline “I’m hiring” or “We’re hiring” in their profile.
- Prepare for online interviews using mock interview tools. Even before landing interviews, it can be useful to start practising.
- Be professional and patient. Always be professional with whoever you are interacting with throughout your search process, this will be remembered. You need to be patient, dedicated and not give up on your search. Candidates need to make sure they are following up appropriately for roles they have applied.
Arda Atalay, head of Mena private sector at LinkedIn Talent Solutions, Rudy Bier, managing partner of Kinetic Business Solutions and Ben Kinerman Daltrey, co-founder of KinFitz
A Cat, A Man, and Two Women
Junichiro Tamizaki
Translated by Paul McCarthy
Daunt Books
INFO
What: DP World Tour Championship
When: November 21-24
Where: Jumeirah Golf Estates, Dubai
Tickets: www.ticketmaster.ae.
What is Genes in Space?
Genes in Space is an annual competition first launched by the UAE Space Agency, The National and Boeing in 2015.
It challenges school pupils to design experiments to be conducted in space and it aims to encourage future talent for the UAE’s fledgling space industry. It is the first of its kind in the UAE and, as well as encouraging talent, it also aims to raise interest and awareness among the general population about space exploration.
Hydrogen: Market potential
Hydrogen has an estimated $11 trillion market potential, according to Bank of America Securities and is expected to generate $2.5tn in direct revenues and $11tn of indirect infrastructure by 2050 as its production increases six-fold.
"We believe we are reaching the point of harnessing the element that comprises 90 per cent of the universe, effectively and economically,” the bank said in a recent report.
Falling costs of renewable energy and electrolysers used in green hydrogen production is one of the main catalysts for the increasingly bullish sentiment over the element.
The cost of electrolysers used in green hydrogen production has halved over the last five years and will fall to 60 to 90 per cent by the end of the decade, acceding to Haim Israel, equity strategist at Merrill Lynch. A global focus on decarbonisation and sustainability is also a big driver in its development.
Sri Lanka squad
Dinesh Chandimal, Dimuth Karunaratne, Kaushal Silva, Kusal Mendis, Angelo Mathews, Lahiru Thirimanne, Niroshan Dickwella, Sadeera Samarawickrama, Rangana Herath, Suranga Lakmal, Nuwan Pradeep, Lakshan Sandakan, Vishwa Fernando, Lahiru Kumara, Jeffrey Vandersay, Milinda Siriwardana, Roshen Silva, Akila Dananjaya, Charith Asalanka, Shaminda Eranga and Dhammika Prasad.