Emaar, Emirates NBD Top List Of GCC 'bargain Stocks'

Some of Dubai’s biggest listed companies have topped a list of bargain stocks in the Gulf Cooperation Council (GCC), according to research released last week by the Kuwait Financial Centre.

The report analysed the performance of the 59 largest listed companies in the GCC (those classed as large cap stocks, with a market capitalisation of greater than $3 billion). These companies make up nearly 73.4 percent of the total market.

The methodology used to determine the list of bargain stocks was the price-earnings score (P/E), which compares a company’s stock price up to the end of February 2019 with its recent earnings reports.

P/E is one of the most widely used metrics in the industry and is used to determine whether a stock is under or overvalued. The lower the score indicates that a stock is deemed to be undervalued.

The top four companies in the rankings were from Dubai: Emaar Development, Emirates NBD, Emaar Properties and Mashreq Bank.

“While most of the companies have registered growth in earnings, none of the companies have provided returns close to what an investor would have expected based on earnings growth,” according to the report by the Kuwait Financial Centre (known as Markaz). The underlining information was based on data from Reuters.

Undervalued

Emaar Developments topped the list with a P/E ratio of 5.1, with its stock performance, compared to an average P/E of 21.3 for companies across the GCC real estate sector. While the developer’s earnings growth since 2016 was up 42.2 percent, its stock price has declined 12.3 percent over the same period, making it the most undervalued stock on the bargain list.

“The real estate sector, especially in the UAE, seems to be undervalued… this indicates that the sector may offer good investment opportunities, particularly in those stocks that have seen a significant growth in earnings without similar growth in their stock price,” the report said.

The banking sector across the GCC had an average P/E ratio of 12.3. Emirates NBD, Dubai’s largest lender, had a P/E of 6.0, landing it second place on the Markaz rankings. While the bank has seen its earnings grow by 25.3 percent since 2013, its stock price has only risen seven percent over the same period.

Other big regional names on the list were Emaar Properties, Mashreq Bank, Bank Muscat, Abu Dhabi Islamic Bank, Dubai Islamic Bank, Aldar Properties and Saudi Investment bank.

When asked why Emaar’s two listed entities had topped the rankings, Rajesh Dheenathayalan, research manager at Marmore MENA Intelligence, the subsidiary of Markaz which compiled the report, told Arabian Business it was because “too much pessimism” had been built into Dubai’s real estate stocks.

“This is time to re-enter,” Dheenathayalan said of the Dubai market as a whole, adding that he had witnessed a lot more asset managers re-evaluating some of these stock in light of the low P/E scores.

The Dubai stock market had a tough 2018, with the Dubai Financial Market General Index declining in value by 25.8 year-on-year, according to data from Refinitiv’s Eikon platform.