As volumes slipped in recent months on the Dubai Financial Market General Index, the publicly traded company of the same name also suffered a direct hit. The question for investors is whether the company can diversify its revenue streams in response. Dubai Financial Market's net profit fell to Dh346.6 million last year from Dh605m a year earlier, the company announced yesterday.
Total revenues also fell by almost half, to Dh502.9m. The company's board is proposing to cut its cash dividend to shareholders to 5 per cent for last year, down from 8 per cent in the previous year. The results are tied directly to the company's reliance on trade volume, said Ali Khan, the managing director of Arqaam Capital in Dubai. The company charges a fee for each trade it clears and also collects a commission based on the trade's value. About 81 per cent of revenue comes from these fees, the company said. That structure is problematic given the lingering uncertainty over the debt issues for Dubai World and regional banks.
"It's challenging to find short-term catalysts in the market," Mr Khan said. "I am bullish on the long view. However, in the short term, we will need to go over a couple of hurdles." In its quarterly investor sentiment report released yesterday, Shuaa Capital asked professional investors whether they would require further disclosure from Dubai World before making investment decisions; 70 per cent said they would.
As a result, there are few signs of volumes rebounding. So far this year, the exchange has processed trades with a total value of Dh13.37 billion, on course to finish more than 40 per cent behind results for the fourth quarter of last year. Yesterday, the Dubai Financial Market executive chairman Essa Kazim said the company was developing a diversification strategy. "We are confident that these plans will enable us to achieve the best balance of revenue streams in the coming few years," he said. Mr Kazim did not provide details, but other exchanges boost revenue by charging fees to companies they list, and by producing data packages that they can sell to investors.
The company closed yesterday at Dh1.41, down 48 per cent from its 12-month high of Dh2.68 on October 14. @Email:firstname.lastname@example.org