(MENAFN- The Peninsula) By Satish Kanady I The Peninsula
DOHA: Driven by attractive fundamentals, QNB Financial Services (QNBFS) is bullish on Qatari equities for this year. Announcing its Qatar equity strategy for 2018 recently, QNBFS noted it remained optimistic on the Qatari equity market on long-term and QEWS, GWCS and QGTS would play.
'Within our coverage universe, we forecast a normalized 4.4 percent increase in aggregate earnings in 2018 followed by a more robust 2019 with 11.7 percent. Despite the issues related to the blockade, we highlight that we continue to expect Qatari equities to post ROE metrics for 2018 and 2019 that are largely in line with peers (12.0/12.5 percent vs. regional peer averages at~11.8/12.2 percent).
'Similarly, Qatari equities are expected to register dividend yields in line with peer average over the next 2 years at an estimated 4.3/4.6 percent vs. 4.7/5.0 percent. With that in mind, we compiled net income expectations of key Qatari equities that we cover,, QNBFS noted in its ‘Qatar equity strategy 2018.' analysts said in.
QNBFS' Qatari coverage list constituted a significant ~43 percent of the overall total market capitalization (ex. QNB Group) of the Qatar Exchange. Factors that can negatively impact our thesis include deceleration of global economic growth prospects, regional geo-political issues, significant deterioration in oil prices, increase in volatility, exit of hot money from emerging/frontier markets, etc.
QNB analysts said the impact of the blockade was certainly felt in equity prices, ‘but with much of the uncertainty behind us, valuations likely price in the current environment,' they said. For the time being, valuations are attractive vs. the region's forward price-to-earnings multiples; the Qatar Stock Exchange Index (DSM) trades at a 2018 P/E of 12.5x, complemented by a dividend yield of 4.3 percent, while regional peer median is at a 11.3x P/E along with a dividend yield of 4.7 percent. While the bounce beginning in December was fueled by optimism regarding dividends and net buying interest in selected names by foreign/GCC investors, the way forward will depend on continued recovery in the macro operating environment. Longer-term, attractive fundamental drivers and a significant spending program should provide tailwinds for growth. Qatar's macro picture remains resilient no significant challenges for Qatar to continue to offset potential fund outflows, support the banking system, sustain economic growth, and defend the peg.
Elaborating the big macro story, QNB analysts noted the Import/export levels remain largely stable with exports increasing from $5.6bn in May 2017 (before blockade start) to $6.0bn only 6 months later. Over the same period, imports initially (and expectedly) declined from $2.6bn in May 2017 to $1.6bn only 1 month later.
This however quickly reversed to pre-blockade levels as now imports are $2.5bn (as of November 2017).
Banking deposits have also been stable though obviously there was a shift in favor of public sector deposits as a result of the injected liquidity and fund outflow from blockading countries. 'We do note that the fund outflow has been more than offset by public sector deposits and that the outflow rate has dissipated from $21bn in June to a positive inflow of $1bn in November. Qatar's credit rating continues to be one of the highest in the world at Aa3 (Moody's) in line with Belgium and Taiwan and ahead of neighboring Saudi Arabia (A1). In addition, the government can easily defend the peg to the greenback given its reserves as well as cover QR deposits and currency in circulation (23 percent of GDP).
The country's large infrastructure investment spending continues largely unaffected with new potential for further investment arising in the medium-to-long term. Current project pipeline capex spending includes $58bn on various construction projects (2019-2025), $98bn on transportation projects (2018-2026), and $21bn on oil/gas projects. Investment opportunities exist to support self-sufficiency such as increasing capacity at Hamad Port, creating large-scale dairy and poultry facilities, relaxing tourism regulations and investments in new leisure facilities, and building the necessary infrastructure to meet the planned 30 percent increase in LNG production over the next 5-7 years.
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