DP World to outdo rivals as ports ride out storm

Investment banks say DP World is weathering the economic turmoil and is better placed than its rivals to deal with a drop-off in world trade.

DP World is weathering the economic downturn and is better placed than its rivals to deal with a drop in world trade, leading investment banks say. Courtesy DP World
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DP World, the global ports operator based in Dubai, is weathering the economic downturn and is better placed than its rivals to deal with a drop-off in world trade, say leading investment banks.

Since DP World's half-year figures were reported last month, showing a surge in net profits to US$741 million (Dh2.72 billion), several big investment banks have reassessed DP World trading and financial prospects.

Three - Deutsche Bank, EFG Hermes and National Bank of Kuwait - have lifted their rating on DP World shares to "buy", while Goldman Sachs retained a "neutral" rating on the stock but sees the potential for a 33 per cent increase in the shares over the next 12 months.

The upgrades will come as a relief to DP World shareholders, who have seen the value of their investment fall by more than 20 per cent since the shares were floated on the London Stock Exchange (LSE) in June.

There was a gentle upturn in the share price in London on Friday as the new ratings filtered through to traders, to close at 645 pence. They opened on LSE in June at 830 pence.

In a series of meetings with investors since the results, Mohammed Sharaf, the company's chief executive,emphasised DP World's growing exposure to emerging markets outside Europe and North America.

"Today, 86 per cent of our consolidated volumes are focused on the faster growing, more resilient emerging markets, making our global portfolio even more resilient to a slowdown or downturn in the macro economy," he said.

Going into the 2009 global economic downturn sparked by the financial crisis, some 75 per cent of DP World's business was in emerging markets.

Investment analysts have largely agreed with Mr Sharaf's line. "Despite some recent indication of global economic slowdown we consider DP World well positioned given its 86 per cent exposure to emerging markets, diverse geography, improved geography and solid balance sheet," said Deutsche Bank, the German lender that was involved in DP World's original 2007 initial public offering on the Dubai market.

Deutsche has set a price target of $14.48 for DP World over the next 12 months. Shares closed last week on the Nasdaq Dubai exchange, where they are quoted in US dollars, at $10.

Goldman Sachs set a price target of $13.6 over the next year, but warned of three risks that could negatively affect the share price: a slower recovery in world trade; any default by Dubai World (DP World's government-owned majority shareholder with 80 per cent of the shares), overruns in capital expenditure and changes in the regulatory environment.

EFG Hermes is similarly positive. "We believe the shares are now pricing in an overly bearish scenario. Container growth volume is likely to remain resilient, and we expect DPW to fare better than its competitors due to its emerging markets exposure," it said. Redwan Ahmed, an EFG analyst, set a fair value of $13.6 for the shares.

NBK Capital, the investment banking arm of the National Bank of Kuwait, suggested a fair value of $14 over 12 months, on the basis of DP World's "resilient business model".

"Global recession fears are back, but DP World is in a better state to handle a decline in trade volumes … Non-container revenue, which tends to be volatile in periods of uncertainty, currently account for just 20 per cent of total revenue," it said.

DP World's exposure to emerging markets has increased because of the disposal of its Australian operations, for $1.5bn, at the beginning of this year, and the opening of new terminals in Peru, Pakistan, India and Vietnam.

Mr Sharaf told investors the company was in a much better position today than it had been going into the last global trading downturn. Even then, however, he said DP World had done better than its rivals, with a 6 per cent decline in container volumes compared with an industry average of 10 per cent.

The company is ranked fourth-biggest in the global container industry, behind Hutchison Port Holdings of Hong Kong, APM Terminals of Holland, and PSA of Singapore.

It is by far the biggest ports operator in the Middle East, deriving 50 per cent of profits from its Jebel Ali hub in Dubai.