x Abu Dhabi, UAEThursday 18 January 2018

Shuaa Capital gets back in black with profit of Dh626,000

Shuaa Capital returns to profit as it enters a period of cost-cutting and its asset management business returns to health.

Shuaa Capital, an investment bank based in Dubai, is back in the black for the first time since last year after it began a cost-cutting drive and laid off a tenth of its employees.

The bank reported a slim profit of Dh626,000 (US$170,428) in the second quarter, compared with a loss of Dh56.6 million for the same period last year, as its asset management and private-equity divisions reversed losses posted earlier this year.

The return to profitability had given the bank confidence to press on with its efficiency drive, said Sheikh Maktoum bin Hasher Al Maktoum, the bank's chairman.

"In the last quarter, Shuaa Capital has been working hard to strengthen its existing business and improve its bottom line," he said.

"The break-even result in the second quarter gives us reason to be cautiously optimistic for the future but we realise that more work needs to be done."

The bank's stocks rose 5.05 per cent to 99.8 fils a share in the wake of the results.

Revenue increased 8.2 per cent from the same quarter last year to Dh35.7m, driven by a sharp upturn in the value of investments in Shuaa's managed funds. A recovery in the values of its stake in associates and other investments also provided a sizeable boost to the company's bottom line.

In May, the bank announced a "right-sizing" drive to save Dh30m, which included layoffs of 39 staff. At the same time, Shuaa Capital appointed Sheikh Maktoum as chairman, replacing Majid Al Ghurair. The bank has reported losses for seven of the past 11 quarters.

Total expenses fell 6.7 per cent to Dh62.7m, although this was achieved mainly as a result of falling interest expenses in the wake of historic lows in interbank lending rates, as opposed to a reduction in the bank's fixed costs.

There was "room for improvement" in Shuaa's profits, said John Tofarides, a financial analyst at Moody's Investors Service.

"They have to incur some expenses and fixed costs to retain talent within the company. There's not much leeway to reduce administrative expenses significantly, so they're putting more efforts into increasing revenues."

A 48 per cent increase in the bank's assets under management to Dh959m was the most positive sign, showing a likely improvement in fee-based income in the months ahead, Mr Tofarides said.

Shuaa Capital's asset management and private equity divisions were the best performing, returning to profit for the quarter.

However, the bank's brokerage division, Shuaa Securities, swung to a loss of Dh1.6m from a profit of Dh500,000 last year.

"Despite extremely difficult market conditions where volumes remained very low across regional stock markets, Shuaa Securities has continued to improve its market position after a temporary drop in May," the bank said.

Shuaa Securities grabbed market share as dwindling volumes forced other brokers out of business, but it was unable to make a profit.