Oman's banking sector is an intriguing proposition for investors at the moment, but one of the top names, Bank Dhofar, comes at a steep cost. The lender's shares trade at a 15 per cent premium to its fair-value price of 0.53 rials, said Murad Ansari, the head of research at EFG-Hermes, which has a "sell" rating on the stock. The company's price-to-earnings ratio of 14.9 is also higher than the sector's average of 11.7, he said.
The share closed yesterday at 0.61 rials in Muscat. One reason the stock is relatively expensive is that only 29.1 per cent of the bank's shares are listed on the country's stock exchange. Factor in that the bank is part of the MSM30 Index, which means that fund managers who track the index will own shares, and you get a stock with low liquidity and high prices. The bank was initially named Bank Dhofar al Omani al Fransi when it started up in 1990 with the purchase of two Banque Paribas branches in Muscat and Salalah.
Today the bank has more than 54 branches operating in corporate banking, consumer banking, treasury and project finance. Bank Dhofar is coming off a strong performance last year, when its net profit rose by 18.5 per cent from 2008. Its gains continued in the first quarter of this year, as it reported an increase of 35 per cent in its net profit to 8.8 million rials, from 6.5m riyals for the same period last year.
But those results are already priced in to the stock, said Mr Ansari, who is based in Riyadh, Saudi Arabia. Until there is more liquidity in the stock, investors may be better served by other options in the sector. The Omani banking trade grew by 5.7 per cent in the first quarter compared with the same period last year, and Mr Ansari said it remained one of the strongest among GCC countries thanks to efficient and cheap funding, higher visibility and better transparency.