UAE markets gave positive returns last month, with Abu Dhabi rising 0.5 per cent and Dubai up 4.8 per cent, mirroring performance in the wider Mena region.
After a prolonged lull, the buzz is returning to the primary market, with Dubai's Emaar Properties set to launch the initial public offering of its malls unit next Sunday. Also the pipeline of future IPOs looks promising.
Second-quarter numbers reported by most UAE companies were either better than or in line with market expectations, highlighting the underlying strong performance of the economy. Geopolitical events aside, as market participants return from the summer holidays, expect the markets to exhibit greater stability and show lower volatility across the GCC region.
The property sector once again outperformed the benchmark index last month but on low volumes. Heavyweights such as Emaar and Aldar were up 14.1 per cent and 21.6 per cent respectively, while mid-small cap names such as Union Properties, Deyaar and RAK Properties rose 5.1, 1.6 and 4.9 per cent respectively.
During the second quarter, the Dubai property market continued new project launches, notably from Emaar, Nakheel and Damac, receiving overwhelming responses from customers. According to the latest report from the brokers Knight Frank, the luxury property segment in Dubai experienced a sharp decline in prices in the first half of the year because of higher mortgage caps and increased transfer fees. It is also worth noting that Damac made an offer to its GDR holders to exchange their GDRs for 23.0769 shares per GDR, as the company intends to list on the Dubai Financial Market next month.
In the construction segment, Arabtec was again in the focus on rumours that Hasan Ismaik, the former chief executive and managing director of Arabtec, was seeking to sell half of his shareholding in the company at Dh5 per share. Shares of Arabtec were up 13.4 per cent last month, but the shares have risen 133 per cent from January to the end of August. Shares of Drake & Scull rallied 8.9 per cent despite reporting weak second-quarter numbers because of a delay in booking revenues from its contracting business segment.
The banking sector continues to benefit from strong underlying economic growth and a recovery in real estate prices. Loan and deposit growth remains robust. Provisioning is declining but still remains high despite an increase in recoveries. This year, we expect mid-single digit loan growth for the sector. Overall the banking system remains quite healthy and the retail sector continues to perform.
For the second quarter, most banks reported good numbers, beating consensus by about 9 per cent. Last month there were notable share price movements, with ADIB up 9 per cent. However, ADCB fell 11 per cent after a sharp rally of 27 per cent the previous month. Similarly Emirates NBD fell 4 per cent after showing gains of 21 per cent in July.
Shares of Dubai Financial Market, the only listed bourse in the region, rose 0.9 per cent during August, bringing its year-to-date performance to 40.1 per cent. The DFM General Index, however, has clocked year-to-date returns of 50.2 per cent.
Average daily traded value stood at US$224 million last month – the lowest since last December. The listing of Emaar’s malls unit, Marka and Damac on the DFM will create further depth and liquidity in the market, which will be complemented by inflows from foreign investors now that the UAE has achieved emerging market status from MSCI.
Last month, Etisalat completed the acquisition of Vivendi's 53 per cent stake in Maroc Telecom. The final consideration was €4.13 billion and Etisalat said it would consolidate Maroc Tel from May 2014.
Dana Gas reported second-quarter net profit of $46m, which was up 70 per cent year on year and beat consensus estimate of $41m by 12 per cent. Average daily gas production in Egypt increased by 25 per cent year on year and 10 per cent quarter on quarter, without incurring higher capital expansion. This is encouraging news, which indicated the quality of their gas wells are probably good. The company’s Kurdish operation remains normal and gas production levels in the second quarter were similar to that of the first three months. While the company has received compensation from the Egyptian government, it is yet to receive payments from the Kurdish regional government since July 2013. The stock inched up 1.4 per cent in August.
DP World reported excellent first half financial numbers. Net profit came in at $332m, which was up 41 per cent year on year on a like-for-like basis, beating consensus estimate of $309m by 7 per cent. The strong performance was driven by the overall macro improvement across the regions in which the company operates. Jebel Ali port currently operates at more than 90 per cent utilisation rate and will add capacity for a further 2 million container units by the end of the year. Non-container revenue increased 8 per cent year on year, reversing last year’s downward trend. Despite the positive results, the stock was down 4.5 per cent last month.
The outlook for the UAE and GCC is very strong based on the strong underlying fundamentals of the region and moves by governments to increase international investor participation.
Saleem Khokhar is the head of equities at National Bank of Abu Dhabi’s asset management group
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