Abu Dhabi's Industrial sub-index is packed with heavyweights, each of which was hit by COVID-19 induced distress in their financials. Image Credit: Gulf News Archive

The DFM index was down by 1.03 per cent to close the week and the year, with losses seen in the banking and service sector stocks. The Abu Dhabi general index dropped 0.84 per cent, with real estate and banking stocks underwhelming.

For 2020 as a whole, DFM declined 9.8 per cent and ADSMI by 0.8 per cent.

ADNOC Distribution, UAE’s largest fuel and convenience retailer, announced a deal in Saudi Arabia to acquire 15 service stations there. The move is a big positive for ADNOC, which has a strong footprint across the UAE.

Saudi Arabia also happens to be the largest fuel retail market in the GCC. The acquisitions price is set for Dh36.7 million. ADNOC Distribution’s volumes, which suffered heavily in the second quarter owing to lockdown measures, saw decent recovery in the second-half.

For the July to September period, volumes grew 24 per cent on a quarter-on-quarter basis. Even in such a turbulent year, ADNOC Distribution expects final 2020 dividend at 20.57 fils/share, an increase of 7 per cent. Its share was up by 37 per cent for the year.

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Inherent strength

Arkan Building Materials and RAK Ceramics have contributed strongly to the broader ADX Industrial Sector with full-year gains of 95.6 per cent and 8.04 per cent, respectively. Overall ADX Industrial gained 18.24 per cent in 2020.

Rally in these two sub-index heavyweights comes despite the challenging sectoral trends. The ADX Industrial is mostly composed of building material suppliers, ship builders and cement companies. All suffered heavily from pandemic-related stress.

Subdued orders

Slowdown in new construction meant lower order flows for these companies. For the first nine months, Arkan reported aggregate net losses of Dh3.71 million as against net profit of Dh36.13 million the previous year.

The company attributed this to lower cement volumes and price impact due to the overall slowdown. RAK Ceramics on the other hand announced stable revenues at Dh625.7 million in their latest results.

Drag on bottom-line

It reported a 7 per cent year-on-year growth in the tiles business, primarily from Saudi Arabia and Europe. The overall profitability was however hit due to increase in trade receivable provisions. One of the main drags to growth was the tableware business, which was impacted heavily due to the stress in hospitality and airline sectors.

Shares of Arkan Building Materials rallied in the second-half of the year with news about a new CEO appointment. Abdelaziz Asad, Arkan’s Chief Operating Officer, became the acting CEO. He has been with the company for over 30 years and worked at all major roles. The company has a highly diversified portfolio that includes cement, concrete products, pipes and bags.

Looking at the overall revenues for the 11 industries in ADX Industrial, their total revenues have fallen by 22 per cent to Dh5.68 billion in 2020. On the profitability side, these firms showed cumulative net losses of Dh523.46 million as against last year’s net profit of Dh158.67 million.

Arkan and RAK Ceramics could provide interesting opportunities owing to their diversified base and market presence. Early recovery in 2021 will bode well for the overall sector.

- Vijay Valecha is Chief Investment Officer for Century Financial.