Aramex shares take a hit on back of costs

Aramex share performance expected to remain subdued on weak earnings from regional unrest, higher costs from transportation and salaries, Alembic HC said.

Aramex, the largest courier company in the region, has been at the sharp end of the rising price of oil and recent regional unrest. That could be reflected in the company's first-quarter earnings.

"Share price performance will be muted in the short term, in our view, following possibly weak first-quarter results this year and until there is better visibility on revenue and cost outlook," said Hatem Alaa, an analyst at Alembic HC Securities based in Cairo.

"Also, investors are likely to remain cautious until there are clear signs regarding how revenue outlook will change in countries like Egypt as life gradually returns to normal, and how the company will be able to manage high transport costs, given high oil prices, and pressure to raise salaries."

Staff costs are expected to rise 11 per cent this year. That compares with a 5 per cent rise last year, and 8 per cent in 2009. The expected increase comes as companies in countries that include Egypt and Saudi Arabia raise wages following government reforms.

Mr Alaa cut the company's target price by 4 per cent to Dh2.17 a share, but upgraded the stock to "overweight" on valuation grounds. Shares of the courier company are down almost 7 per cent since the beginning of the year. That still outperforms Dubai's benchmark. Shares gained more than 6 per cent yesterday to close at Dh1.90.

Aramex is expected to increase its earnings modestly this year. Revenue from its business in the region grew 8 per cent last year compared with the previous year, versus 28 per cent for its Asian, European, and North American businesses. The UAE and Saudi Arabia, Aramex's two largest markets in the region, are mostly unaffected by unrest.

Assuming a 15 per cent drop in earnings from countries including Egypt, Bahrain and Syria and low single-digit growth elsewhere, Aramex would still post earnings growth of up to 3 per cent this year, he said. Mr Alaa revised his revenue estimates for the company to Dh2.43 billion from Dh2.48bn and cut net income estimates for the same period to Dh210 million from Dh222m.