UAE banks, holding firms good buys: Invest AD
Abu Dhabi, April 21, 2011
Abu Dhabi-owned Invest AD believes select banks and holding companies in the United Arab Emirates are attractive buys despite the recent rally and the firm's Gulf fund does not shy away from taking off-market bets.
Dubai's flagship index has gained 24.3 percent since touching a six-year low on March 3. Abu Dhabi has gained over 7 percent during the same period.
'In the UAE, there are still a few companies which are quoting at significant discount to fair value. People have painted everything with the same brush,' Sachin Mohindra, manager for Invest AD's GCC Focus Fund said in an interview.
Mohindra said he likes large-cap banking stocks such as First Gulf Bank (FGB) and National Bank of Abu Dhabi (NBAD) because of their relatively cheaper valuation even though he expects lending growth to remain muted in the near-term.
'If you look at some of the bigger Abu Dhabi banks like FGB or NBAD, they earn a return on equity of around 18pc and are still available below book value,' Mohindra said. 'There is a mispricing somewhere and it will play out eventually.'
Some of Mohindra's top holdings in his $32 million fund do not typically feature in a Gulf fund manager's portfolio. One example is Abu Dhabi investment holding company Waha Capital, which currently trades below 1 dirham a share and has a market value of $408 million, according to Reuters data.
Mohindra believes the stock is at a significant discount to its fair value and is among his top overweight holdings as of end-March.
Last October, Waha agreed to buy aircraft leasing firm AerCap Holdings NV in a $380 million deal by paying cash and transferring a 40 percent stake in its aircraft portfolio.
'The value of the 20 percent stake in Aercap itself is more than the total market capitalisation of Waha. Typically, holding companies quote at a discount to their underlying investments, but not so much of a discount,' Mohindra said.
The manager also favours Saudi food retailer Abdullah Al Othaim, a little known firm focused on the growing Saudi middle class. The stock has risen 24 percent year-to-date and returned more than 57 percent in the last year, according to Reuters data.
'It's a classic bet on the Saudi consumer story,' Mohindra said.
Mohindra, who also manages other discretionary accounts at Invest AD, is keeping away from Saudi banks for the time being as valuations are not suitable, he said.
His fund, which is benchmarked to the S&P GCC LargeMid Cap Index, returned 19.5 percent last year, beating the benchmark. The fund is trading flat so far this year, Mohindra said.
Invest AD is owned by Abu Dhabi Investment Council (ADIC), which focuses on countries closer to home and is a separate entity from Abu Dhabi Investment Authority (ADIA), one of the world's largest sovereign wealth funds. - Reuters