Nothing can remain in Dubai for long without being fitted into the city’s many storeyed status structure.
As any random five persons in Dubai to rank the best hotels in the city, and you are likely to come up with identical lists. Residents rank everything from property amenities to the latest trends in brunches with such precision that it is a sight to behold.
It is in the nature of human beings to pursue the next new ‘buzzy’ thing, and these days that seems to be everything related to AI. It is thus with some bewilderment that the zeitgeist in town over the last few months has been to do with IPOs that have nothing to do with AI. From DTC to Salik and now Parkin, the talk has been about the most ‘boring’ subjects in the capital markets – such as ‘infrastructure assets’.
Astonishingly enough (only If you don’t know Dubai), these companies have performed exceptionally well by global standards. And driven by retail investor demand, there seems to have developed a counterculture where the emphasis has been to understand the business model. Simplicity is synonymous with profitability.
It’s a valuation game
Of course, it is not so simple to view the world this way, and other IPOs have done well. With more in the offing - there has been some talk about Etihad Airways being finally considered for a listing. The difference is nonetheless surprising for a couple of reasons:
- The cult of the financier is non-existent in the UAE, the way it is in the rest of the world (or in the way it is here in the real estate sector).
- Amidst all the talk about the volatility of the capital markets, and the new highs being achieved in America (and Japan), there is this sudden sense of confidence regarding valuations about domestic companies being world-beating champions.
Remarkably, even with all the hedge funds moving here with their analysts, there has been some reluctance on their part to assign ‘sell’ ratings on some of these companies. No matter, it has been the retail investor that has led the charge, placing themselves in the cocktail lounges of various hotels and exhibition centers, summoning the energy to gather information.
They have been the true progenitors, even as earnings calls have waxed eloquent about bright prospects for all of the companies that have been listed, as has been custom in all the markets. The results have been breathtaking : Salik up over 85 per cent, DTC up over 20 per cent, Empower up over 30 per cent.
Now, with record subscriptions piling in for Parkin, the mood in the air is to snap up the shares of companies that have been granted natural monopolies alongside high cash payouts.
Despite high interest rates and the peddlers of real estate projects, the depths of the pockets of retail investors have yet to be plumbed. Despite every investor knowing that the allocations to be received are likely to be infinitesimal, the interest persists as everyone from 18 years to 81 stare at their apps to make sense of every new move and announcement and how it impacts capital allocation.
Parkin’s got room to grow
Parkin’s share price offer implies a valuation of between 15x and 16x earnings, which is nearly 50 per cent lower than comparably traded companies like SP Plus (32x) in the US, indicating significant upside potential. Despite the prospects of higher finance costs, the growth potential is significant enough to deliver double-digit returns earnings growth for the company - and for the long-term investor.
The returns that have been delivered buttress the privatization program and allow for retail and institutional investors to be part of this growing club, by voting for simplicity, predictability, monopoly and, just as well, comprehensibility.
In this day and age of increasing complexity laden jargon, it’s hard not to be proud of this.
There will be many more after Parkin, but as we can see already, there have been quite a few converts. In the status rating game, capital markets are rocketing up the charts. Top 5 stocks anyone?
