Abu Dhabi shares have reached a five-month high as investors await third-quarter earnings that are widely expected to show a marked improvement in trading. Two years after the onset of the financial crisis, investors will be studying earnings reports for signs of a lasting recovery.
There are many encouraging indicators. Dubai World has reached a settlement with almost all of its bank creditors, local bourses are rising and the capital markets are showing signs of a revival. "Everyone is optimistic, which is why most banking stocks are up," said Alfred Fayek, the managing director of EFG-Hermes Brokerage in Dubai. "Everything is clear right now. Banks do not need to take more provisions. What else is left?"
At the International Islamic Finance Forum in Abu Dhabi yesterday, the announcement of several new sukuk marked a potential rebound in Gulf debt markets. Simon Eedle, the global head of Islamic banking at Credit Agricole, said a long-delayed US$1 billion (Dh3.67bn) sukuk planned by Total and Saudi Aramco to finance construction of an oil refinery in Jubail, Saudi Arabia, would be launched before the end of the year.
Those deals followed several major offerings in the Gulf in recent weeks, including by Aluminium Bahrain, the Omani mobile phone company Nawras and the Dubai mobile phone retailer Axiom Telecom.
Despite those developments, some analysts believe this quarter's earnings will reflect the lingering effects of the crisis, with stronger profits to be delivered in the fourth quarter and early next year, said Marwan Shurrab, the vice president and chief trader at Gulfmena Alternative Investments in Dubai. Local banks are expected to show improved results, mainly because of heavy provisioning in the previous two quarters.
Abu Dhabi Commercial Bank is positioned to show the largest growth in profit, with the analysts' consensus indicating net income of Dh258.7 million for the third quarter, up from Dh35m in the same period last year. On the property side, developers should slowly start to benefit from the hand over of key projects during the third quarter, said Chet Riley, an analyst at Nomura Securities in Dubai. "Revenue recognition depends on delivery schedule," he said.
Nomura assumes a hand over rate of 30 per cent for Emaar Properties's Burj Khalifa and 8 per cent for Aldar Properties's recently launched Al Bandar project. The consensus of analysts suggests Emaar's net profit for the third quarter will rise to Dh699.2m from Dh655m in the same period last year. Aldar Properties is expected to report a loss of Dh230.9m compared with a profit of Dh427m last year, but an improvement from last quarter's loss of Dh475m.
"We still anticipate operational losses, with the catalyst remaining the delivery of a clear, cohesive and credible financing plan", in the fourth quarter, Mr Riley said. In the telecommunications sector, Etisalat is forecast to report a profit of Dh2bn in the third quarter, down from Dh2.2bn in the same period last year, according to estimates by four analysts. The company's pending bid to acquire 46 per cent of the Kuwaiti telecoms operator Zain will not affect earnings.
The improved economic picture has brought investors back to local bourses after months of low volumes and slumping share prices. The Dubai Financial Market General Index has rallied by more than 15 per cent since the beginning of last month, outperforming all other regional indexes this quarter. The Abu Dhabi Securities Exchange General Index has advanced more than 7 per cent in the same period.
* with reporting by Gregor Stuart Hunter
In the original version of this story we incorrectly said that Abu Dhabi Islamic Bank had announced a sukuk sale to take place this year. The company has made no announcement at this time.