UAE indices are having an amazing run on the back of positive news related to vaccine developments. The DFM posted three consecutive days of gains while ADX has rallied in the last seven trading sessions. During the past five trading sessions, DFM gained 2.29 per cent while ADX rose 4.02 per cent.
Moderna’s COVID-19 vaccine appears to be 94.5 per cent effective in trials and a host of others are also in the last round of testing. This should fuel more fund flows into UAE assets. The biggest question among local investors might be which UAE listed entities will benefit the most.
Of course, there are myriad factors that impact performance, and it is tough to straightaway conclude a list. Nonetheless, there are some clues. During the second quarter, UAE passed through a tough lockdown and there was almost a complete cessation of commercial activity for some time.
Spotting likely winners
However, in the third quarter, there was some semblance of normalcy and many companies resumed normal activity. By the same logic, companies which showed growth from the second quarter to the third are likely to perform well in 2021 too with the arrival of a vaccine.
Almost half of the UAE companies have declared their results for the third quarter and the sectors that performed well from a sales perspective on a quarter-on-quarter basis include airlines, hotels, property and casualty insurance, building materials, soft drinks, and real estate. Some of the sector names are pretty obvious to any casual investor as these are the ones that will emerge first from the impact of a lockdown.
The best performing UAE companies on a quarter-on-quarter basis are Air Arabia, whose revenues rose 145 per cent, Emirates Driving company (125 per cent), Islamic Arab Insurance Co. (105 per cent), Abu Dhabi National Hotels (66 per cent), Union Insurance Co. (62 per cent), Fujairah Cement Industries (46 per cent), Ras Al Khaimah White Cement (42 per cent), Commercial Bank International (36 per cent), Dubai Refreshments Co. (35 per cent), Abu Dhabi National Oil Co. (34 per cent) and Emaar Development (31 per cent).
It is apparent to anyone that Air Arabia will benefit from a further normalization of the business environment. Emirates Driving Co., on the other hand, is a play on domestic consumers and their spending power.
Barometer on consumer ways
Anyone who has a UAE driving license will immediately agree that it takes some time and money to get it. Some say, only half jokingly, that it is easier to get a university degree. Emirates Driving Co.’s 125 per cent revenue growth on a quarter-on-quarter basis suggests that UAE residents are again willing to spend. And that is certainly good news.
Abu Dhabi National Hotels with a Dh179 million revenue in the third quarter is a name worth watching. The 40 per cent plus growth at Fujairah Cement Industries and Ras Al Khaimah White Cement shows that the construction sector is getting back to normalcy. And each could benefit from stimulus programmes.
More people are back on the roads and filling up at the pumps. Evidently, they are consuming more soft drinks also. That explains the 34 per cent sales growth of ADNOC and 35 per cent for Dubai Refreshments Co..
Without a doubt, some of these companies are likely to show further growth in 2021.
- Vijay Valecha is Chief Investment Officer at Century Financial.