Doha lender looks like a bargain buy

Doha Bank's shares are trading at around a 25 per cent discount to its peers making it a good buy for bargain hunters

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Bargain shoppers may want to take a closer look at Doha Bank.

The Qatari lender has been upgraded to "neutral" from "sell" by Goldman Sachs after a recent sell-off. Its share price has shed 22.6 per cent of its value since Goldman's initially added the lender to its "sell" list on January 25.

In Goldman's view, "the stock price already incorporates the bank's relatively weak competitive positioning, below sector-average loan growth and relatively weaker asset quality and capitalisation".

It trades at about a 25 per cent discount compared with its peers, despite an expected return on earnings of 18 per cent by next year, only marginally lower than its peer bank average returns of 19 per cent.

With a two-year price target of 66.78 Qatar rials and potential for the share price to rise another 45 per cent, Goldman's analysts are bullish on the return for investors.

The outlook is not without caveats. Regional instability continues to shake the share price of almost all companies in Qatar and the wider Mena region.

Potential losses from winding down Doha Bank's Islamic business are also on the horizon. Last month, the Qatari central bank surprised banks by ordering all commercial banks to shut down their Islamic banking units, to avoid mixing conventional and Sharia-compliant banking and potentially "contaminate" the two.

But unlike Qatar National Bank, which derived 16 per cent of last year's net profit from its Islamic unit, Doha Bank has a relatively small Islamic banking operation and is expected to be less sharply hit. Qatar's potential inclusion on the MSCI Emerging Market Index could open up the market and its companies to many more institutional fund managers. The successful 2022 Fifa World Cup bid is also widely expected to boost lenders' balance sheets.

The big deals that must be funded for the Gulf state's economy will offer a boon to lenders including Doha Bank, Goldman says. Yesterday, shares in the bank ended 2.2 per cent higher at 48.8 rials.