Strong outlook for DP World’s shares
In the latest research report on DP World, HSBC Global Research has initiated a target price for the company of $1.05, less than the initial offer price of $1.30 when it listed on the Dubai International Financial Exchange (DIFX) on November 26.
The latest research note by HSBC, dated February 29, suggests that analysts may be becoming less bullish on the outlook for DP World’s shares. In the most research notes of Deutsche Bank and Shuaa Capital for example, dated on January 15 and January 7 respectively, Deutsche Bank has a target price of $1.33 and Shuaa Capital has an even higher target price of $1.47.
Even the less bullish Morgan Stanley, in a research note dated 5 February, has a price target of $1.10 (at the time when DP World’s share price was $0.99) based on the view that “DP world offers exciting growth prospects from capacity additions and margin expansion, and risk to near-term earnings is not a big concern”. Its discounted cashflow (DCF) bear case scenario is as low as $0.65 however.
HSBC says its target price of $1.05 indicates an approximate 18 per cent potential return against the share price (at the time of writing) of $0.89. It also notes: “DP World’s stock has been weak and volatile since the IPO in November 2007. On a 2008e PE of 28.6x, it is still trading at a premium versus the global ports sector (on a PE of 27.2x). This is probably justified given its exposure to markets with strong growth dynamics and it appears well positioned for growth over the medium term.”
Although HSBC recognises that upside “could come from further capacity expansion and acquisitions,” it also notes “the main downside risk is of contagion from the US on its Middle East, European and Chinese terminals.” The bank also notes that because DP World is a recent IPO and the stock has been weak “we flag this as a more risky (or volatile) investment and initiate coverage with a neutral (v) rating.”
The latest research note by HSBC, dated February 29, suggests that analysts may be becoming less bullish on the outlook for DP World’s shares. In the most research notes of Deutsche Bank and Shuaa Capital for example, dated on January 15 and January 7 respectively, Deutsche Bank has a target price of $1.33 and Shuaa Capital has an even higher target price of $1.47.
Even the less bullish Morgan Stanley, in a research note dated 5 February, has a price target of $1.10 (at the time when DP World’s share price was $0.99) based on the view that “DP world offers exciting growth prospects from capacity additions and margin expansion, and risk to near-term earnings is not a big concern”. Its discounted cashflow (DCF) bear case scenario is as low as $0.65 however.
HSBC says its target price of $1.05 indicates an approximate 18 per cent potential return against the share price (at the time of writing) of $0.89. It also notes: “DP World’s stock has been weak and volatile since the IPO in November 2007. On a 2008e PE of 28.6x, it is still trading at a premium versus the global ports sector (on a PE of 27.2x). This is probably justified given its exposure to markets with strong growth dynamics and it appears well positioned for growth over the medium term.”
Although HSBC recognises that upside “could come from further capacity expansion and acquisitions,” it also notes “the main downside risk is of contagion from the US on its Middle East, European and Chinese terminals.” The bank also notes that because DP World is a recent IPO and the stock has been weak “we flag this as a more risky (or volatile) investment and initiate coverage with a neutral (v) rating.”
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