Morgan Stanley bullish on Abu Dhabi banks
Morgan Stanley (NYSE:MS) has initiated coverage on three Abu Dhabi banks with price targets suggesting an average potential upside of 21%. The forecast recommends Abu Dhabi banks as an inexpensive play on GCC growth.
Of the three banks covered, Morgan Stanley’s top pick was First Gulf Bank, with a 26% potential upside and a clear ‘overweight’ rating. The other two banks, Abu Dhabi Commercial Bank and Union National Bank both received ‘equal-weight’ rating with price targets offering 21% and 17% respectively.
In the report, “Abu Dhabi Banks: Cheap Play on GCC Growth”, Tammam El Barbir, Morgan Stanley Banking Analyst for the MENA Region, says that Abu Dhabi banks look set to benefit from the Gulf Corporation Countries’ (GCC) current thriving economic cycle. He suggests the factors influencing the upbeat outlook on the sector are the “robust macro outlook leading to strong loan growth”; the “potential for M&A activity” in the region and the fact that “Abu Dhabi banks are trading at attractive valuations relative to both GCC peers and historical multiples”.
“Gulf Cooperation Council countries are in the midst of a virtuous economic cycle, in our view, with real GDP growth expectations to 2010 of 5-10%, according to our economists. We see Abu Dhabi banks as an inexpensive way to play the GCC growth story.”
The report says that another reason to be bullish on Abu Dhabi banks is the Government of Abu Dhabi’s ‘Plan Abu Dhabi 2030’, an ambitious plan to transform the capital into an ultra-modern city. Key economics of the plan are to have 3.1 million residents by 2030 versus 0.93 million in 2007; and 686,000 residential units versus 180,000 in 2007. The estimated value of the plan is $200 billion.
Speaking of the plan, El Barbir said: “Holding everything else constant, the business of Abu Dhabi banks should triple by 2030 if the plan proves successful.”