x Abu Dhabi, UAEWednesday 17 January 2018

HSBC is banking on Aramex to deliver

The region's largest listed courier could deliver strong returns.

The region's largest listed courier could deliver strong returns in a difficult market. HSBC initiated coverage on Aramex yesterday with an "overweight" recommendation and suggested a target price of Dh1.90, which would be an improvement of more than 35 per cent from yesterday's closing price of Dh1.41. Investors seem to agree with the bank's analysis. Of the 27 equities traded on the Dubai Financial Market (DFM) yesterday, Aramex was the only one to finish in positive territory, ahead by 0.7 per cent. The DFM as a whole dropped 3.1 per cent.

Aramex, which provides international and domestic express package deliveries, freight forwarding and logistics services, is well positioned as it operates in many MENA countries that may not be as affected by the global economic crisis. Although the rapid growth of the logistics sector in the final quarter of last year is over, the recovery is continuing and HSBC said in a note it was much more optimistic about the growth in cargo volumes than before.

The bank believes Aramex compares favourably with its global peers on revenue growth, margins and returns, but trades at a discount of between 33 and 55 per cent discount. "One factor deterring investors seems to be the foreign ownership limit, theoretically set at 49 per cent. This, combined with risk perception surrounding Dubai's economy, could strain the upside in the share price," the HSBC note said, adding an improvement in either factor would benefit Aramex stock prices.

Aramex reported a net profit of Dh47.5 million (US$12.9m) for the first quarter of this year, up 10 per cent from the same period last year, driven by its freight-forwarding business. The lender expects Aramex cash flows to grow at a compound annual growth rate of 8.9 per cent between last year and 2012. Aramex shares are about 19 per cent down from their 12-month peak in March and have lost ground slightly since the start of this year.