Companies' Earnings Growth Continues, While Market Takes A Breather

(MENAFN- Iraq Business News) By Ahmed Tabaqchali, Chief Strategist of AFC Iraq Fund .

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News .

Companies' earnings Growth Continues, while market Takes a Breather

The equity market, as measured by the Rabee Securities U. S. Dollar Equity index (RSISX USD Index), was down 4.1% in August, and up 8.0% year to date.

The combination of a hotter-than-normal hottest month of the year for the second month in a row (charts below), and the 40-day Arbaeen pilgrimage, cast their shadows over the country's economic activity, and on the market's trading volumes.

The pilgrimage ended with a climax marking the end of the 40-day mourning period (Arbaeen in Arabic) of the death of Prophet Muhammad's grandson, Imam Hussein, which ended on the 25th of August.

Normal economic activity generally slows down considerably during the Arbaeen - among the world's largest annual pilgrimages, with a reported 21.4 million pilgrims taking part this year, with some walking to Karbala from across Iraq. Normally, about two-thirds of pilgrims come from Iraq and one-third from Iran, Lebanon, the Gulf states, Pakistan, India, the U.K., and the U.S.

Monthly Weather Averages for Baghdad (°C)

August 2024 Temperature Graph for Baghdad (°C)

(Source: Top chart: weather-and-climate ; bottom chart: accuweather , data as of August 31st)

The top companies in the market continued their strong earnings and book value growth with the release of the 2nd quarter of 2024 (Q2/24) earning reports, which showed strong quarter-over-quarter and year-over-year growth. Given that these companies operate in different sectors, each with their own dynamics, and each company within the same sector (banking) with its own particular dynamics, the tables below aim to capture these dynamics by looking at both quarterly and yearly growth.

They compare Q2/24 to Q1/24, Q2/24 to Q2/23 to capture quarterly growth both sequentially and year-over-year, as well as trailing 12 months (TTM) ending in Q2/24 to TTM ending in Q2/23 to capture full year growth.

The background to the healthy growth enjoyed by these companies is the relative stability that the country enjoyed over the last few years, which provided a stable and predictable macroeconomic framework for businesses and individuals to operate in and to plan for capital investments on a scale not seen in the last prior decades of conflict; that in turn, should be sustained by the population's pent-up demand for goods and services to catch up with the rest of the world.

Supporting this growth are the liquidity injections into the economy by the government's expansionary three-year budget for 2023-25, that resulted in an estimated real non-oil GDP growth in 2023 of 6.0%, followed by an estimated 3.5% in 2024, which is projected to grow further still by 3.3% in 2025 (IMF). For the banking sector, this has been further fuelled by the significant fundamental developments that promise to accelerate the adoption of banking and bring about a transformation of the sector and its role in the economy, which in turn should promote the growth of other companies.

Earning and book value growth for selected companies

(Source: Rabee Securities, company reports, and AFC Research. Details and notes (**), data as of Q2/2024.
Note: Book value growth for TTM/24 vs. TTM Q2/23 is identical to that of Q2/24 vs. Q2/23)

While the combination of a hotter than usual hot August, and the 40-day Arbaeen pilgrimage have affected trading activity, extending the profit taking for a fourth month in a row. However, the market's technical picture continues to be positive, and the pull-back has been within its multi-month uptrend (chart below).

Rabee Securities U.S. Dollar Equity Index

(Source: Iraq Stock Exchange, Rabee Securities, AFC Research, daily data as of August 31st)

The equity market, as measured by the Rabee Securities U. S. Dollar Equity Index (RSISX USD Index), which by the close of the month is 20.3% below its 2014 peak, has the potential to regain that peak and to rally further, reflecting the developments discussed here over the last few months. However, significant risks remain given Iraq's recent history of conflict, extreme leverage to volatile oil prices, as well as the risks that the widening of the current Middle East conflict will not be contained and evolve to destabilise the region.

Notes:

(*) Using unaudited quarterly data, and earnings are net profit after tax. IBSD's net profit is arrived at after accounting for the company's tax rate. TASC's Q4/23 earnings are calculated using full year 2023 figures and Q1/23-Q3/23 figures.

Please click here to download Ahmed Tabaqchali's full report in pdf format .

Mr Tabaqchali (@AMTabaqchali ) is the Chief Strategist of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years' experience in US and MENA markets. He is a Visiting Fellow at the LSE Middle East Centre, Senior Fellow at the Institute of Regional and International Studies (IRIS), and a Senior Non-resident Fellow at the Atlantic Council.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

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