This week DFM made a total gain of 1.66 per cent while ADX closed lower by 0.45 per cent.
ADNOC Distribution stole the limelight with a $1 billion placement of its shares. The transaction represents the largest block placement of a publicly listed Gulf company and should provide a boost for institutional participation in UAE equities. The company's shares have already rallied by more than 40 per cent from its March lows.
The placement was done at Dh2.95 and accounts for almost 10 per cent of the share capital. The trade was done at a discount to the current market price, but that is not necessarily bad since in large deals, investors do bargain for one. The more important thing is that ADNOC Distribution business model and corporate governance has been validated.
In 2019, management announced a 62 per cent rise in dividend to Dh2.39 billion. For this year, ADNOC Distribution has already announced a dividend of Dh2.57 billion and this will be the same in 2021 also. It is worth noting that the company has announced a dividend equal to at least 75 per cent of distributable profits from 2022 onwards, subject to Board approvals. The company with a market capitalization of Dh42.50 billion has a dividend yield of 5.62 per cent
Dividends seem sustainable as even in a COVID-19 battered fist, ADNOC made a net profit of Dh910 million. Moreover, the company is on track to open 50-60 service stations this year itself, and also has an e-commerce strategy that allows customers to order 1700 ADNOC products. That should help in revenue growth.
Ambitious turnaround hopes
Among other news, Unikai Foods has announced a business restructuring strategy to come out of its accumulated losses. It will see rationalization of truck fleet to improve truck throughput, Reduction in the number of stock keeping units (SKUs) and increasing customer penetration from 52 per cent to 72 per cent of the targeted customer segment. The strategy will result in a decline in revenue - but will improve profitability.
Unikai net profits are expected to jump from Dh510,000 in 2019 to Dh17.86 million in 2023, and this is likely to reflect in its share prices as well.
- Vijay Valecha is Chief Investment Officer at Century Financial.