Investment earns DP World an upgrade

What's Up: DP World, the world's third-largest port operator, has been upgraded from "neutral" to "outperform" by Credit Suisse.

The completion of work at DP World's existing facilities such as Jebel Ali Terminal 3 and new ones such as London Gateway will mark a peak in the capital expenditure cycle of the company, Mr Resillot Show more

DP World, the world's third-largest port operator, has been upgraded from "neutral" to "outperform" by Credit Suisse.

The financial services group said its decision was based on the Dubai-based ports operator's investment in its existing and new facilities, and the fact that its main operations are in regions less affected by the economic downturn.

Credit Suisse raised its target price to US$14.70 from $12.48 and said its valuation was back to mid-2009 levels - at the low end of its 0 to 35 per cent premium to global peers on one-year forward EV/Ebitda, a formula used to determine the value of a company. According to the Credit Suisse analyst Vincent Resillot DP's decision to rely on emerging markets to offset a potential economic slowdown meant it was "geographically hedged", as growth has resumed, especially in the Gulf, Africa and Latin America.

"We increase our 2012-14 consolidated throughput forecasts by 1 to 3.5 per cent to reflect our expectations of a softer slowdown of global container volumes growth and the new projects to be commissioned from 2014 onwards," Mr Resillot said. DP World is expected in 2015 to reap the advantages of investing in cheap capacity in its existing facilities in modern ports, as they benefit from the industry shift towards larger-capacity cargo vessels.

The completion of work at DP World's existing facilities such as Jebel Ali Terminal 3 and new ones such as London Gateway will mark a peak in the capital expenditure cycle of the company, Mr Resillot said. "Jebel Ali is one of the very few major ports globally to be able to handle the largest container ships being currently delivered to shipping lines, and this competitive advantage could keep pricing power on the side of DP [World]."

Credit Suisse downgraded DP World last September to "neutral" after saying it saw trade growth slowing for the port operator in the second half. Although it said at the time that DP World's terminals were well positioned, about half of the volumes in the company's main hub of Jebel Ali was in the volatile trans-shipment business, and subject to more sensitive pricing.

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