Barclays initiates coverage of five Adnoc stocks with 'overweight' rating

Listed subsidiaries are ready to scale with rapid AI and technology adoption, bank says

An Adnoc Distribution service station. The company is among the five listed subsidiaries that present a compelling investment case, analysts say. Photo: Adnoc Distribution

Britain’s Barclays Bank has initiated coverage of five of listed subsidiaries of Adnoc, with an “overweight” rating on each and expects price appreciation of their stocks in the next 12 months.

The five companies – Adnoc Distribution, Adnoc Drilling, Adnoc Gas, Adnoc Logistics & Services as well as Fertiglobe – are assets that are ready to scale, with rapid artificial intelligence and technology adoption, Barclays analysts Lydia Rainforth, Ramachandra Kamath and Mick Pickup wrote in a note to investors last week.

“Together, these companies form a diversified ecosystem poised to deliver robust returns in a dynamic energy landscape,” Barclays said. “We take the unusual step of initiating on each company with an ‘overweight’ rating.”

An overweight rating on a stock refers to analysts expectations that stock will outperform its industry peers within the next six to 12 months and it is used as an industry yardstick to guide investors on the potential of price appreciation of a particular stock.

Barclays’ broader coverage of five Adnoc-listed companies is a strong vote of confidence in the Adnoc investment ecosystem and in the UAE as a dynamic, resilient and increasingly attractive destination for global capital

Youssef Salem,
CFO, Adnoc Drilling

Barclays said the Adnoc stocks it has included in its coverage universe offer a range of different investment cases with the combination of “value and momentum as the optimal mix”.

The typical return on average capital employed, a financial ratio showing profitability versus the investments a company has made in itself – across Adnoc-covered companies is 20 per cent, which compares to the average of the US and European group at just 11 per cent.

Barclays analysts estimate dividend yields average of 4.9 per cent for investors and expects on average 35 per cent potential upside to the stock prices from current levels.

“With Barclays initiating coverage on Adnoc Drilling with an overweight rating, we are proud to now be the most covered stock in Mena, followed by 19 research analysts and supported by 18 'buy' recommendations from across the globe, from China to the US,” said Youssef Salem, chief financial officer of Adnoc Drilling.

“Barclays’ broader coverage of five Adnoc-listed companies is also a strong vote of confidence in the Adnoc investment ecosystem and in the UAE as a dynamic, resilient, and increasingly attractive destination for global capital.”

Barclays said the wider market negativity across the energy sector spectrum was “overdone”. The British bank continues to forecast oil and gas demand to grow into the 2030s, notably for oil as non-Opec supply additions slow.

“Concerns about a sustained sharp fall in oil prices will prove unfounded, even in the current tariff backdrop,” Barclays said.

The lender's positive rating and target price are a strong endorsement of Adnoc Gas's long-term growth strategy and recent financial performance, said Fatema Al Nuaimi, chief executive of Adnoc Gas.

“Adnoc Gas is targeting 40 per cent Ebitda growth between 2023 and 2029, which, we believe, is a key factor in Barclays recommendation of a buy rating for our stock,” she said.