EFG-Hermes says it expects 19.3 per cent Mena earnings growth in fourth quarter

Growth in profitability is expected to be led by Saudi Arabian companies and banks as oil prices rebound

EFG-Hermes is bullish on regional IPOs in the wake of higher oil prices. Reem Mohammed / The National

 The Middle East and North African (Mena) region companies covered by the Egyptian investment bank EFG-Hermes are expected to record 19.3 per cent year-on-year profit growth in the fourth quarter of 2017 as economies  rebound on the back of higher oil prices.  

Financial institutions and Saudi Arabian energy firms are expected to lead the aggregate corporate gains among 136 firms in the Cairo-headquartered bank's coverage universe, EFG-Hermes said in report ahead of the fourth- quarter earning reports.  

The expected rise in profitability for the publicly traded companies  comes despite a 20.7 per cent drop in earnings in US dollar terms for Egyptian corporations following the devaluation of the country's currency in November 2016. "In terms of major countries under coverage, we expect the strongest year-on-year earnings growth in Saudi Arabia and Qatar," the bank said in the report.  

Companies and financial institutions in the UAE and Kuwait are expected to post aggregate income growth of 10.5 per cent and a profit drop of 2.2 per cent, respectively. The bank, which did not give a total value of Mena earnings, is forecasting a combined year-on-year profit decline  of  only 2.8 per cent for companies in Egypt in local currency terms.   

The projected gains come as the 18 per cent rise in oil prices last year eased pressures on corporations and banks in the GCC and the wider Mena region which had largely put expansion plans on hold, awaiting more clarity on the direction of hydrocarbon prices. Profitability, for a number of financial institutions in the Arabian Gulf region, also improved amid a marked decline in provisions  and an improvement in the economic fortunes of the region.  

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During the third quarter of the year, publicly-traded companies in the region, on aggregate reported earnings that came 3.7 per cent abovethe expectations of EFG-Hermes' analysts. Egypt, the UAE and Saudi Arabia led the positive surprises in the three-month period to the end of September,  10.7 per cent, 7.8 per cent and 5 per cent higher aggregate earnings, respectively than the forecast. The companies showing the biggest positive surprises in the third quarter  in the region operate in basic materials and industrial sectors, EFG-Hermes noted.  

Corporations in Saudi Arabia, the world's biggest oil producer and the region's largest economy, got a shot in the arm after the price of oil rose following supply cuts by Opec and some of world's other major producers. Saudi Basic Industries Corporation, the biggest publicly-listed company in the kingdom and one of the world's top chemical producers, reported a 5.79bn Saudi riyal profit in the third quarter of 2017 versus the mean estimate of 4.11bn of analysts polled by Bloomberg.  

Separately, U Capital, a Muscat financial services firm, said that it expects the profits of listed banks in Oman, which make up the majority of companies traded on Muscat Securities Market, to post higher year-on-year earnings on aggregate in the fourth quarter of 2017 on the back of increased demand for Sharia-compliant financial services.  

“We believe that growing demand for Islamic finance products among the Omani population is helping Islamic banking to become significantly important in the Omani credit market with a share of 12.6 per cent,” U Capital said in a report.  

“Within the listed Omani banks, Bank Muscat, Bank Dhofar & Ahli Bank have rapidly built up Islamic windows, which are showing superior performance. Other conventional banks, however, lag in Islamic credit growth.”