SummaryDuring April MENA equity markets outperformed global equity markets gaining 1.4% as measured by the MSCI Arabian Markets Index. International indices remained flat during the month, down a mere 0.1% as measured by the MSCI World Index. On a YTD basis the region has also produced a solid performance as the MSCI Arabian Markets Index recorded a gain of 13.1%, while the MSCI World Index was up only 2.6%.
Performances among regional markets were mixed with the Egyptian market recording the best performance on the back of positive performances from index heavyweights Orascom Telecom Holding and Commercial International Bank. Egypt also outperformed the region on a YTD basis, climbing 19.4%.
In the UAE the Dubai World debacle continued to impact markets. Yet unlike last month, this did not push markets up as the ADX dropped 4.5% and the DFM declined 5.6% and was the region’s poorest performer for April, a sharp contrast to last month’s gain of 15.7%.
Earnings announcements marked regional index performance this month with companies across the board announcing their first quarter 2010 results. To the dismay of investors, the majority of companies witnessed a contraction in earnings during the first quarter with a few exceptions recording an actual growth in earnings.
The Tadawul index gained 1.0% during the month of April and on a YTD basis the stock market has performed well to climb 12.2%. Fertilizer and petrochemicals sector earnings announcements helped to push the market up, with Saudi Basic Industries Corporation (SABIC) reporting a Q1 10 net profit of SAR 5.4 billion compared to a net loss of SAR 974 million in Q1 09, due to improved petrochemical sale volumes and prices. The company also declared the distribution of cash dividends of SAR 1.5 per share. The news supported stock performance with SABIC climbing as much as 5.5%.
Saudi Arabian Fertilizers Company (SAFCO) also reported an increase in Q1 10 net profits, to climb 33% to SAR 698 million, compared to Q1 09, attributable to the increase in urea and ammonia prices. However, the company’s stock performance did not reflect these earnings results as it declined 4.6%.
In banking, there were mixed performances during the month. Samba Financial Group was down 2.1% after reporting a Q-o-Q decline of 7.4% in Q1 10 net profits to SAR 1.21 billion. Saudi British Bank (SABB) followed suit as the stock slipped 1.9%. The bank reported Q1 10 net profits of SAR 621.0 million, representing an annual decline of 18.3% compared to Q1 09.
Al Rajhi Bank fell 2.9% during the month of April, despite an annual decline of 2.8% in Q1 10 net profits. Banque Saudi Fransi also reported a decline in Q1 10 net profit, down 3.6% to SAR 714 million compared to Q1 09, but the stock still managed to increase by 0.4%.
In the real estate sector Dar al-Arkan reported a Q1 10 net profit of SAR 398.6 million, representing a drop of 6.1% compared to Q1 09. The stock traded sideways during the month of April.
On the telecom sector front, Mobile Telecommunications Company (ZAIN) reported a Q1 10 net loss of SAR 663 million compared to a net loss of SAR 765 million in Q1 09. The stock lost 8.2% by the end of the month. On the other hand, Etihad Etisalat (Mobily) reported a Q1 10 net profit of SAR 714.0 million, representing an annual increase of 48.8%. This pushed the stock up 5.5%.
Both UAE indices reversed the strong performances experienced last month with the DFM index closing down 5.6%, while the ADX lost 4.5%. The hustle regarding the Dubai World restructuring plan continued to impact the market, as Dubai World offered creditors a 1.0% interest rate on two new tranches of debt as part of its restructuring plan. Limitless, a Dubai World property unit and its creditors were able to negotiate a 90-day extension on a USD 1.2 billion loan that was due March 30, 2010, with the company expected to request payment of the loan over five years. Meanwhile, Nakheel offered its creditors a 10.0% return on planned Islamic bonds. Nakheel additionally elaborated its plans to pay creditors and contractors USD 8.2 billion in June. Arabtec Construction, a subsidiary of Arabtec Holding, also revealed that it would be paid 40.0% of its outstanding debt, due in April, by Nakheel. The Dubai World developments had no positive impact on the real estate sector with the majority of stocks ending the month in negative territory. Emaar Properties fell by 2.3%, despite reporting an annual growth of 220.7% in Q1 10 net profits, reaching AED 760.0 million. Sorouh Real Estate fell 8.1% and Aldar Properties was also down 15.0%.
Arabtec and Aabar Investment also closed in the red, losing 8.9% and 7.3%, respectively. In April the two companies announced the cancellation of the USD 1.7 billion agreement for Aabar to acquire a 70.0% in Arabtec. Both firms provided no reason for the cancellation, leaving stock prices tumbling.
The telecom sector also dragged the index down, headed by Emirates Integrated Telecommunications (Du) which fell by a significant 14.6%. Emirates Telecommunications Corporation (Etisalat) followed suit, down 6.7%.
In the banking sector, Central Bank data showed that UAE banks’ total provisions grew from AED 28.2 billion in March 2009 to AED 48.1 billion in March 2010. Provisions for non-performing loans grew 58.8% to AED 34.4 billion and general provisions edged up 114.0% to AED 13.7 billion. The banks' combined loans climbed to AED 1,022.0 billion at the end of March, from AED 1,017.5 billion in February while deposits rose to AED 967.0 billion from AED 958.3 billion during the same period.
On the whole, the banking sector performance was also poor with Abu Dhabi Commercial Bank slipping by 17.9%, after announcing the conclusion of its joint venture with Macquarie Bank Limited. Dubai Islamic Bank also closed in the red, down 12.4%. Meanwhile the bank relatively outperformed as the stock traded sideways. During the month NBAD announced the launch of an exchange-traded fund (ETF) together with Global Fund to be listed on the Abu Dhabi stock exchange.
On another note, several banks started announcing their Q1 10 results with Sharjah Islamic Bank reporting a 20.6% decline in Q1 10 net profits to reach AED 67.5 million. Following the drop in earnings the stock ended the month in the red losing 1.0%. On the other hand, Abu Dhabi Islamic Bank reported an increase of 9.3% in Q1 10 net profit of AED 293.3 million, the stock ended the month in the green, climbing a significant 9.2%. United Arab Bank also reported a decline of 0.5% in Q1 10 net profit to reach AED 65.5 million.
After recording a positive performance in February and March, the Kuwait Stock Exchange reversed its upward trend, losing 3.1% by the end of April. The main influences on the market included the release of earnings results and S&P’s updated ratings on the Kuwaiti financial services sector.
Standard & Poor's (S&P) Ratings Services downgraded the ratings on Gulf Investment Corporation, including lowering the counterparty credit ratings to 'BB-/B' from 'BBB-/A-3', and placed the long-term ratings on CreditWatch with negative implications. The agency also lowered the long-term counterparty credit rating of Commercial Bank of Kuwait (CBK) from 'A-' to 'BBB' with a stable outlook. Consequently CBK declined by 3.2%. Meanwhile, National Bank of Kuwait (NBK) reported a Q1 10 net profit of KWD 76.2 million, an increase of 20% compared to Q1 09. The stock gained 3.3% during April.
Also in the financial sector, Gulf Invest International announced that it had defaulted on a AED 200 million loan to Abu Dhabi Commercial Bank, while its guarantor UAE's Shuaa Capital is in talks to restructure the loan.
In the telecom sector, Mobile Telecommunications Company (Zain) Board of Directors has recommended increasing its cash dividend distribution by 240% to reach KWD 0.17 per share for FY 09 compared to a cash dividend of KWD 0.05 per share for FY 08. Despite the hike in dividends, stock performance was negative, down 2.9%.
On the macro front, Kuwait's M2 money supply, an indicator of future inflation, decelerated 3.1% in March 2010 compared to March 2009 to reach KWD 25.6 billion.
The Qatari index closed up 1.1% at 7,547.4 points. As was the case across the region, index performance was marked by Q1 10 earnings announcements.
In the banking sector, most results reflected an annual decline in profitability with few exceptions. Qatar National Bank which ended the month up 2.9%, was an exception, as it reported a 25.3% annual increase in Q1 10 net profits to reach QAR 1.3 billion. Meanwhile, the bank’s long-term ratings were affirmed at ‘A+’ by S&P, while short-term rating was affirmed at ‘A1’, with a stable outlook. Capital Intelligence also affirmed the bank’s long-term foreign currency rating of ‘AA-‘, while its short-term foreign currency rating was affirmed at ‘A1+’ and its financial strength rating of ‘A+’, with a stable outlook on all. Masraf Al Rayan also posted a 44.0% annual increase in Q1 10 net profit to reach QAR 301.8 million. The stock ended the month up by a significant 11.8%
Commercial Bank of Qatar, reported a severe 48.7% annual decline in Q1 10 net profits, reaching QAR 410.0 million, yet the stock closed the month up 4.6%. Qatar Islamic Bank also reported a 14.1% annual decline in Q1 10 net profit to reach QAR 300.0 million. Capital Intelligence has affirmed the bank’s long-term foreign currency rating of ‘BBB+‘, its short-term foreign currency rating was affirmed at ‘A2’ and its financial strength rating of ‘BBB+’, all ratings carry a stable outlook. Additionally the agency affirmed the bank’s support rating of ‘2’. The stock ended in the red, down 3.7%.
Ahli Bank which, climbed 15.9%, also reported a 9.5% dip in Q1 10 net profits to reach QAR 78.0 million. Doha Bank reported a 4.5% annual decline in Q1 10 net profit to reach QAR 315.0 million and dropped 0.2%.
In the real estate sector, Barwa Real Estate Company inched up 5.9%, after reporting an 8.3% annual increase in Q1 10 net profit to reach QAR 210.0 million. The company also announced the repayment of QAR 4.3 billion in Islamic financing facilities.
Meanwhile in the telecom sector Qatar Telecom’s Q1 earnings beat analysts’ expectations as the company recorded an 11.0% annual increase in Q1 10 net profit of QAR 659.0 million. This positively affected stock performance, up 11.4% by the end of the month.
The MSM Index closed the month up 2.0% at 6,830.4 points, while the market was up 7.2% on a YTD basis. The banking sector performed well, positively affecting index performance. This came even though the majority of banks witnessed a decline in their Q1 10 net profits.
Bank Sohar ended the month in positive territory and climbed 3.9%, despite reporting a Q1 10 net loss of OMR 776,000 compared to a net profit of OMR 2.8 million in Q1 09. Fitch Ratings has assigned the bank’s Long-term Issuer Default Rating (IDR) of ‘BBB+’ with a stable outlook and assigned its Short-term Issuer default Rating at ‘F2’, individual rating of ‘C/D’, support rating of ‘2’ and support floor of ‘BBB+’.
Bank Muscat also reported a 49.4% annual decline in Q1 10 net profit to reach OMR 24.5 million, but the stock grew by 6.6%. Meanwhile, National Bank of Oman performed well and climbed 8.1%, despite reporting a 10.2% annual decline in Q1 10 net profits. Bank Dhofar also had a good month climbing 3.9% after reporting a 27.9% annual increase in Q1 10 net profits to reach OMR 8.8 million. On the downside, Oman International Bank ended the month in negative territory and plummeted by a significant 9.7%, following the bank’s announcement of an 11.2% annual decline in Q1 10 net profit.
Of particular note was Galfar Engineering and Contracting Company’s performance as the stock outperformed the market, closing up 6.9%. This came after the company was awarded national infrastructure contracts amounting to OMR 41.0 million.
On the macroeconomic front, the Central Bank of Oman stated that total assets increased by 7.0% in February 2010 to reach OMR 14.5 billion compared to OMR 13.6 billion in February 2009, while total outstanding credit increased by 6.7% to reach OMR 10.0 billion at the end of February 2010 compared to 2009 figures. Moreover, Omani money supply accelerated to 6.1% year-on-year in February where M2 stood at OMR 8.1 billion. Inflation rates almost maintained January levels as it stood at 2.0% in February compared to 1.7% in January, however dropped significantly from 2009 levels of 7.9%.
Continuing its bullish trend, the Egyptian stock exchange gained another 9.5% during the month of April, making it the top performing regional market this month and year to date. The main highlights during the month included earnings announcements and the final resolution of the dispute between France Telecom and Orascom Telecom Holding.
In the telecom sector, it was a busy month for Orascom Telecom Holding (OTH). The company ended its tax dispute with the Algerian authorities and confirmed that its wholly owned Algerian unit, Djezzy, paid USD 113 million to the Algerian tax authority representing the last installment of the principal that is owed to the Algerian authorities in relation to taxes for 2005-2007. The Chairman also confirmed that OTH’s Algerian unit has been prevented from transferring profits out of the country by the Central Bank of Algiers.
On a different note, France Telecom Holding and Orascom Telecom Holding finally reached an agreement on Mobinil and the Egyptian Company for Mobile Services (ECMS) to effectively end all disputes in relation to their joint investment in Mobinil. In essence, the two shareholders will continue their partnership on a renewed basis going forward, implementing a revised shareholder agreement but with no change to the existing ownership structure or their shareholders’ voting rights. The agreement also includes the integration of LINKdotNET. This will allow the company, subject to the approval of its corporate bodies, to extend broadband and corporate communications services to its 26 million customers and to create value for its shareholders and its 3,500 employees. OTH was positively affected by all this news and gained a considerable 27.4% by the end of the month.
Meanwhile, the CEO of (Mobinil) (EMOB.CA) expects to complete the acquisition of internet service and content provider LinkdotNet in Q2 10. Mobinil's shares were down 0.9% during the month while Telecom Egypt climbed 7.8%.
Among the companies that announced their results, El Sewedy Cables reported a FY 09 net profit of EGP 630.7 million, representing a 29.7% decline compared to FY 08 which impacted the stock performance negatively, losing 1.1%. On a different note, El Sewedy Cables AGM and EAGM approved the increase of the company's authorized capital by EGP 3.5 billion to EGP 5.0 billion, through a bonus share distribution of 30.0%. Meanwhile, Sixth of October Development and Investment Company (SODIC) reported a FY 09 net loss of EGP 112.5 million compared to a net profit of EGP 26.8 million in FY 08, taking the stock’s monthly losses to 4.3%.
In the banking sector, Commercial International Bank (CIB) approved a capital increase of EGP 25.7 million, bringing the bank’s total capital to EGP 2.9 billion. Additionally, the bank’s EAGM also approved the delisting of the bank’s stocks from the Abu Dhabi and Kuwaiti stock exchanges. Accordingly, CIB accumlated a monthly gain of 14.5%.
On the macro front, the Finance Minister stated that the FY10/11 budget deficit is expected to reach EGP 106.0 billion, EGP 8.0 billion higher than the expected FY09/10 budget deficit of EGP 98.0 billion.