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Cautious investors weigh on index

Muscat - 

After gains posted in the first half of last week (January 13-17), selling pressure and volatility returned to the market, coupled with moderate trades in the absence of key disclosures, as investors wait for more clarity on corporate performances.

The benchmark MSM30 index ended the week down 0.21 per cent week-on-week to close at 5,806.49 on declines in the stocks of Omantel, bank muscat, HSBC Oman, Shell Oman Marketing and Ominvest. 

The Al Arabi Oman20 index gained 0.85 per cent to close at 1,128.33 as turnover amounted to RO15.05mn. While the Al Arabi GCC50 Index dropped 1.03 per cent to close at 1,021.64, the Al Arabi MENA200 index fell 0.72 per cent to close at 956.10.

The market is awaiting further disclosures regarding preliminary results which, as stated earlier, will remain one of the main drivers in the near-term. In our last report, we expected a large number of result announcements last week. However, as disclosures were lower than expected, which might be due to different reasons, trading activity remained weak.

However, disclosures made during the previous week were in line with our positive expectations, as net profits and distributions announced have been positive and will further support momentum in the market.

We expect the remaining banks to disclose positive results this week, similar to those disclosed by bank muscat and Bank Sohar.

An analysis of the subindices indicates a positive performance by the Industrial sector when compared to its peers. The sector benefited from gains in Oman Cables Industries, Al Jazeera Steel Co and Galfar Engineering and was up 1.07 per cent week-on-week.

Oman Cables reported strong profits at the group level in FY’12. While sales actually contracted on an annualised and quarterly basis by 5.5 per cent y-o-y and 0.8 per cent q-o-q in FY’12 and Q4’12, respectively, at RO257.2mn and RO61.2mn, profits improved markedly. The company achieved a net profit of RO4.64mn in Q4’12, almost double that reported in the previous quarter which might be due to various factors like better realisations, higher-than-expected contribution from its subsidiary or the existence of extraordinary items. Net margin stood at its highest in more than two years at 7.6 per cent in Q4’12. Management has proposed a cash dividend of 70 per cent on share capital, the highest ever (although payout ratio remains almost flat on an annual basis at over 52 per cent) implying a dividend yield of 6.11 per cent on the day of the announcement. The stock reacted positively touching its upper limit on the day after the announcement and ended the week up 8.7 per cent at RO1.23 and topped the gainers' chart.

The financial index recorded gained 0.04 per cent w-t-w to close at 6,764.07. The index was supported by Bank Sohar, National Bank of Oman and Ahlibank.

The previous week saw an increased focus on Bank Sohar's rights issue as its trades in terms of right issues were among the highest in the market. This reflected positively on the bank's share price which ended the week up 1.74 per cent w-o-w at 175bz.

Bank muscat reported a set of attractive full-year numbers with net interest income and net income growing nine per cent and 18 per cent, respectively, to RO230mn and RO139mn. The country’s largest bank reported a higher cost-to-income ratio at 41.59 per cent in FY’12 relative to 41.08 per cent in FY’11 sighting higher manpower and operating expenses related to business expansion, which we believe pertains to staffing their Islamic banking window.  We are encouraged by the bank's deposit growth which rose 11 per cent over FY'11.  Further, the capital raising carried out last year positions the bank to take advantage of the Islamic banking opportunity, for which it was recently granted a licence by the Central Bank of Oman.

The preliminary results of Oman United Insurance Co were announced last week. The company recorded a notable increase in net profit of FY’12 of 138 per cent y-o-y at RO2.6mn, thanks mainly to investment income which went up 195 per cent y-o-y to RO3mn. On a quarterly basis, despite the moderate gross written premium (a trend commonly seen in the last quarter) and higher management expenses (including depreciation and provision for bad and doubtful debts), gain on investments was again the key savior as it went up  193 per cent q-o-q, leading to a subsequent increase in quarterly net profit to RO400,000 in Q4’12 compared with RO40,000 in Q3’12. The stock price increased on the announcement and ended the week up 2.37 per cent at 216bz.

The services index recorded a retreat of 0.33 per cent to close the week at 2,960.08. ACWA Power Barka, Shell Oman Marketing and Omantel all contributed to the decline of the index.

Market traded volume and value retreated 20.65 per cent to 100.77mn shares and 18.12 per cent to RO23.6mn, respectively. Institutional foreign investors were clearly buyers, ending the week net purchasing RO2.33mn of shares, and offsetting local selling pressure by both institutions and individuals. 

Global markets posted losses early last week on weak GDP data from Germany. Investor concerns about fresh confrontations amongst US politicians over raising the debt ceiling, an issue that requires a resolution before overall borrowings hit US$16.4tn, also contributed to early weakly losses. However, a slew of better-than-expected results for the September-December quarter in the United States saw markets recover towards the end of the week.

Oil traded lower during the week on news of higher inventories in the US coupled with the World Bank's cut in GDP projections for the global economy from three per cent to 2.4 per cent in 2013. GDP data for the US, the world’s biggest crude consumer, was also reduced by 0.5 per cent to 1.9 per cent for 2013. 

Gold prices also reacted to negative economic news flow trending higher early last week as concerns set in amongst investors. However, the precious metal corrected towards the end of last week as better-than-expected results improved investor sentiment towards risky assets.

Recommendation

We advise investors to closely watch corporate results, reverting to analysts to assist them in understanding dividend distributions giving consideration to yields on dividend distributions.

 As mentioned earlier, we expect dividends yields and distributions for FY’12 to be better compared with FY’11 and advise investors to increase their investments in the market especially in high-yielding plays.

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