Many reasons behind DP World's decline

On a day when a major cloud was lifted over Dubai stocks, why did shares of the ports operator DP World drop sharply? Analysts say there were several reasons, none of which bode well for the short-term outlook for the stock. DP World was down as much as 6.5 per cent before closing off 4.75 per cent at 44 US cents a share. The decline was due in part to the later closing of NASDAQ Dubai, where DP World trades.

The Dubai Financial Market (DFM) rose sharply soon after the Dubai World announcement yesterday morning but steadily drifted back down through the day as investors recognised there are still several hurdles to clear before the deal is complete, said Saad Chalabi of AlRamz Securities in Abu Dhabi. Because DFM closed two and a half hours earlier than NASDAQ Dubai, the trading in DP World reflects the growing cynicism toward the deal.

Also playing a role was Morgan Stanley's move to re-rate DP World stock from "overweight" to "equal weight" yesterday, adjusting the price target slightly to 52 cents from 53 cents. The bank said its decision was the result of DP World's communication to Morgan Stanley analysts that the company felt the bank's previous forecast was overly bullish. Morgan Stanley also believes any negative news emerging from Dubai entities will continue to weigh on the stock. As such, the investment bank cut its earnings per share estimates by 23 per cent.

The bank wrote that it does not expect DP World to be able to list on the London Stock Exchange until the fourth quarter, which will limit liquidity. Finally, the Shuaa Capital analyst Kareem Murad said yesterday's stock's performance was not related to regional news at all. Mr Murad said the stock was being punished over investor concerns about the euro zone and a growing perception that if trading volumes decrease, it will have an impact on company's revenues and bottom line.

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