Qatari Companies Enjoy Robust Balance Sheets

(MENAFN- The Peninsula) Deepak John | The Peninsula

Doha, Qatar: Qatari companies enjoy robust balance sheets backed by low leverage and decent Return on Equity (RoE). Qatari banks stand out with their exceptional capital adequacy ratios, strong provision coverage and high profitability.

“With several QSE companies boasting strong balance sheets but beset with lower valuations, we are beginning to see new initiatives aimed at enhancing shareholder value. The new rules allowing the distribution of interim dividends by QSE-listed firms could further enhance Qatar's appeal to local and foreign investors,” QNB Financial Services (QNBFS) said in its QSE fourth quarter (4Q) 2024 Earnings Preview.

The stock price performance of banks, ending 2024, has outperformed the QSE Index; the banking sector index increased by 3.4%, while the QE Index dipped by 2.4%.

“We are of the view that a positive outlook on 2025 asset quality could serve as a catalyst as asset quality remains a concern for investors, especially for mid-sized banks given that NPLs have spiked along with Stage 2 loans, which so far has not shown signs of improvement.”

The resumption of monetary loosening should further bolster the attractiveness of the Qatari equity market as a yield play.

“Anchoring our overall convictions are Qatari valuations, looking attractive historically and relative to peers, especially given that we see earnings continuing to grow for the foreseeable future,”“We stay bullish longer term on Qatari equities given their defensive characteristics backed by their strong fundamentals. Moreover, from a technical viewpoint, with all three return measures (yearly, 3 year and 5 year) below trend, it is not inconceivable for QSE to end 2025 higher,” it added.

Keeping with the Year-on-Year (YoY) positive trend witnessed since 4Q2023,“we forecast 4Q2024 earnings to grow 4.8% YoY. Sequentially we see earnings declining by 12.1%. This follows a 7.8% and 11.1% Year-on-Year and Quarter-on-Quarter expansion in 3Q2024 aggregate QSE earnings. We see most of the YoY growth in 4Q2024 coming from banks. Based on our 2024 estimates, our coverage universe will grow aggregate earnings by 6.6% and total dividend payout by 1.5%.”

“We remain constructive on Qatari equities as the mainstay LNG/fundamental story anchors the Qatari economy/equities directly/indirectly, augmented by ramping up of the North Field project and the recently upgraded capacity expansion target – a significant portion of Qatar's expected annual LNG capacity increase is already signed-off in long-term supply contracts.”

In the non-oil/gas economy, continued government efforts to grow and diversify the economy provide another platform for more companies to grow their earnings – with persistently strong tourism numbers since 2022.

According to the Bloomberg consensus, Qatar's GDP is expected to grow by 2.7% this year, up from 1.5% in 2024.

The Qatar Central Bank followed the Fed, slashing the local benchmark rates by a cumulative 115bps since the beginning of last year, which bodes well for the local economy. Qatar has always been a yield play and more so now that interest rates are coming down. The report said,“We believe that Qatari companies have solid financial metrics and strong dividend profiles/yields that will become relatively more attractive as central banks lower interest rates.”

Supply-demand dynamics of oil/gas remain attractive in the short- to medium-term.

With the successful hosting of the World Cup, perceived as one of the best editions and putting Qatar in the global spotlight,“we are of the view that pockets of the Qatari stock market should benefit from this success.

Qatar has continued to grow its sports and MICE tourism brands. The impact has been immediate, with the country registering record visitor arrivals in 2024 and well on track to hit the 6m/year visitors target by 2030.”

Over the medium- to long-term, the“upgraded” North Field Gas Expansion, a nascent but growing tourism/sporting sector and QNV 2030 investments to make Qatar an advanced economy, will continue to be major growth drivers for our companies.

The demand for Qatar's gas should remain strong for the foreseeable future on the back of geopolitical developments, specifically in Europe, with demand for LNG expected to peak between mid-2030s and mid-2040s, it noted.

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