International Holdings is on one hot streak, and UAE investors are watching

The fallout of Arabetc's liquidation seems to be muted - at least for today - with DFM closing lower by 0.34 per cent while ADX was down 0.58 per cent. Markets seem to have understood that the liquidation is more of a technical proceeding - anyway, Arabtec shares have been out of favor and last month alone had declined by more than 31 per cent.

Let's take a look at the best and worst performers in September. The top five gainers were Dubai Islamic Insurance, which rallied 92.31 per cent, Abu Dhabi National Takaful (82.84 per cent), AXA Green Crescent (27.82 per cent), Emirates Driving (25.50) per cent and Dar Al Takaful rose by 23. 36 per cent. Aramex and Gulf Cement were the other prominent gainers, by 18.89- and 15.40 per cent, respectively.

The worst performers were BH Mubasher Financial, a decline by 31.20 per cent, Arabtec Holding (31.08 per cent), Eshraq Investments (18.11 per cent), and Manazel Investments (14.81 per cent), while National Marine Dredging was in the red by 14.72 per cent.

A standout performance

Nothing comes close to the stupendous show by International Holdings Co. (IHC), which is up an eye-popping 529 per cent year-to-date. In fact, the rise has confounded everyone in the market as just a year ago this was a relatively obscure company. IHC with a market capitalization of Dh71 billion is currently the fourth largest listed company... and even bigger than Emirates NBD.

IHC is modelled as an investment holding company and is led by Sheikh Tahnoon Bin Zayed Al Nahyan, who is also chairman of Royal Group. He is also the National Security Advisor of the UAE. 

A hugely diversified mix

Under its fold, IHC holds companies related to utilities, real estate, digital, industrial, food and capital markets. During the first six months of 2020, total revenue was Dh2.45 billion, and the largest contributor was the industrial with Dh1.28 billion. It owns Trust International, a major supplier to UAE Armed Forces and security establishment.

Food segment was the second largest with Dh418 million, while utilities fetched revenues of Dh101 million. Gross revenues of the group was a mere Dh353 million in the first-half of 2019. This year, gross profit at Dh883 million is higher by 1,837 per cent while net profit of Dh814 million came about after a 7,452 per cent upturn from 2019.

The enterprise and made a bunch of acquisitions this year. Some of the companies which it acquired are Al Tamouh Investments, Al Seer Marine Supplies, Agrinv, Easy Lease Motorcycle Rental and Dashing International. According to the latest financial statements, IHC has cash of Dh1.79 billion, which is more than the debt of Dh1.36 billion. Reports indicate that company is planning do more acquisitions in solar energy and technology outside the country.

It is tough to value a company with revenue and profits that are growing at a fast pace. Moreover, the company is planning to do even more acquisitions, which makes it tough to project future revenues. The key will be the amount of debt it takes to finance such acquisitions.

Eye on new buys

At the moment, the debt is manageable. That might not be the case, if the company becomes more aggressive. IHC is suited for UAE investors who are looking for a growth stock. There is a probability that company might become part of emerging market indices due to its high market cap.

Global interest rates are near record lows, so that is supportive of company’s acquisition led growth strategy. As they say, fortune favors...

- Vijay Valecha is Chief Investment Officer at Century Financial.