The current economic boom should continue to drive the growth of the UAE banking sector in foreseeable future, revealed a study compiled by the National Investor (TNI), ) a privately owned regional investment banking group.
According to the study released yesterday, a favourable macroeconomic backdrop, along with increased government and private spending on infrastructure projects, has underpinned the strong growth of the UAE banking sector.
In terms of aggregate asset size, the UAE emerges as the largest in the GCC region with USD273bn as compared to USD250bn recorded by Saudi Arabia at the end of Q2/07.
First Gulf Bank (FGB) has been the fastest growing commercial bank in the UAE, the study showed. It grew assets at a CAGR of 87.6pc during the last three years, more than twice the rate of the 10 largest banking networks (+38.4pc). In terms of balance sheet size, FGB's market share increased from 1.3pc in 2001 to 7.1pc in 2006.
"Due to such significant growth, the bank is now competing with the leading UAE banking players, a definite upgrade from its historical status of medium-sized bank", said Burhani Ali, who prepared the report.
He added that the FGB's performance this year was positively surprising, largely due to a diversification of its revenue stream. With a capital adequacy ratio (CAR) of 21.3% at end 2006 vs. the legal requirement of 10%, the bank remains clearly over-capitalised.
Ali pointed out that the "FGB has used such excess capital to expand successfully into real estate and promoting new ventures, adding that "going forward, we will be monitoring FGB's performance to assess its ability to continually convert equity into high-yielding businesses".
TNI used two valuation methods, DDM and P/B analysis.
"Our DDM yields a fair value of AED 20.2 per share, an upside of just 0.9% to the closing price of AED 20.0. With FGB currently trading at a book value multiple of 2.6x against a sector average at 3.0x, and assuming convergence towards industry benchmarks, the bank is worth AED 21.4 per share, an upside of 7.2%", he said.
He added that the bank assigns a weight of 80% to the more reliable DDM, and arrive at a fair value per share of AED 20.4, an upside of 2.2% compared to the closing price of AED 20.0.
The TNI report concluded that "Our outlook on FGB's fundamentals remains positive and we recognize the potential for additional earnings surprises in the future. However, with an absolute stock performance of 63.9% YTD corresponding to a sector out performance of +35.2%, we feel that a Fairly Priced recommendation is justified". Source
According to the study released yesterday, a favourable macroeconomic backdrop, along with increased government and private spending on infrastructure projects, has underpinned the strong growth of the UAE banking sector.
In terms of aggregate asset size, the UAE emerges as the largest in the GCC region with USD273bn as compared to USD250bn recorded by Saudi Arabia at the end of Q2/07.
First Gulf Bank (FGB) has been the fastest growing commercial bank in the UAE, the study showed. It grew assets at a CAGR of 87.6pc during the last three years, more than twice the rate of the 10 largest banking networks (+38.4pc). In terms of balance sheet size, FGB's market share increased from 1.3pc in 2001 to 7.1pc in 2006.
"Due to such significant growth, the bank is now competing with the leading UAE banking players, a definite upgrade from its historical status of medium-sized bank", said Burhani Ali, who prepared the report.
He added that the FGB's performance this year was positively surprising, largely due to a diversification of its revenue stream. With a capital adequacy ratio (CAR) of 21.3% at end 2006 vs. the legal requirement of 10%, the bank remains clearly over-capitalised.
Ali pointed out that the "FGB has used such excess capital to expand successfully into real estate and promoting new ventures, adding that "going forward, we will be monitoring FGB's performance to assess its ability to continually convert equity into high-yielding businesses".
TNI used two valuation methods, DDM and P/B analysis.
"Our DDM yields a fair value of AED 20.2 per share, an upside of just 0.9% to the closing price of AED 20.0. With FGB currently trading at a book value multiple of 2.6x against a sector average at 3.0x, and assuming convergence towards industry benchmarks, the bank is worth AED 21.4 per share, an upside of 7.2%", he said.
He added that the bank assigns a weight of 80% to the more reliable DDM, and arrive at a fair value per share of AED 20.4, an upside of 2.2% compared to the closing price of AED 20.0.
The TNI report concluded that "Our outlook on FGB's fundamentals remains positive and we recognize the potential for additional earnings surprises in the future. However, with an absolute stock performance of 63.9% YTD corresponding to a sector out performance of +35.2%, we feel that a Fairly Priced recommendation is justified". Source
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