x Abu Dhabi, UAETuesday 25 July 2017

Plain sailing forecast despite parent's debts

What's up Profit at DP World is down sharply and its stock is coming off a recent surge, yet some analysts still see the company as having an attractive value.

DUBAI // Profit at DP World is down sharply and its stock is coming off a recent surge, yet some analysts still see the company as having an attractive value. Credit Suisse, which covers about 10 port operators outside this region, has initiated coverage on DP World with a price target of 60 US cents a share. That is about a 30 per cent premium over the stock's closing price yesterday, which was down 2 per cent at 48 US cents.

The Swiss bank believes that DP World has been "unjustifiably penalised" for the debt troubles of its parent, Dubai World, even though DP World is explicitly excluded from the continuing restructure. The companies have repeatedly stated that none of DP World's assets are pledged against Dubai World's debt. DP World said yesterday that net profit from continuing operations fell to US$333 million for the period ending December 31, down from $621m in 2008, while revenue fell to $2.8 billion from $3.28bn as container volumes declined 8 per cent.

The company said that despite the decline in profit, it is seeing signs of recovery. Investors appear to agree. This month the Dubai Financial Market General Index has advanced more than 9 per cent on reports suggesting Dubai World is close to make a proposal to its lenders. By contrast, DP World shares have gained 25 per cent on NASDAQ Dubai over the same period. "We believe the market is now assuming reasonable ring-fencing of DP World's asset," said Hans Zayed, a Credit Suisse analyst.

Global container volumes have started rising since the last quarter of last year. The fact that DP World is 80 per cent exposed to an emerging market where growth is expected to be higher than the global increase suggests that the firm is particularly well positioned to benefit from improving industry fundamentals. In addition, Mr Zayed believes that DP World's planned dual listing on the London Stock Exchange in the second quarter of this year will also prove to be a major boost for the stock.

@Email:skhan@thenational.ae