Emirates NBD and ADCB are 'value plays'

Broker sees all UAE banks as 'cheap' on price-to-book basis

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Now is the prime time for summer sales and investors may be able to pick up shares in a couple of UAE banks at a steep discount. Emirates NBD, the country's largest lender by assets, and Abu Dhabi Commercial Bank (ADCB) are the "preferred value plays" for the investment bank Rasmala. Rasmala yesterday initiated coverage on the UAE banking sector, describing the two banks as "undervalued" because the shares already reflect the risk associated with Dubai debt.

"Although we are concerned about the impact of the Dubai economy on the balance sheet of both banks, we believe the current valuations take this into account," Rasmala said in a research report. The company estimated Emirates NBD and ADCB are trading at a 33 per cent and 37 per cent discount to sector averages, respectively. It placed a "buy" on Emirates NBD stocks with a price target of Dh3.26. The share closed at Dh2.50 yesterday.

It also considers ADCB a "buy", with a target of Dh1.81. ADCB closed at Dh1.60. The Abu Dhabi bank, the third largest in the capital, has already had a steady rise this year. It is up more than 20 per cent from its 52-week low in January and has increased more than 5 per cent this month. But Emirates NBD is not much higher than its February low of Dh2.35 and has declined more than 46 per cent from its 12-month high last November.

Rasmala sees all UAE banks as cheap, both on a price-to-earning and price-to-book basis. "We believe that these numbers reflect an unjustified expectation of failure for the Dubai business model," Rasmala analysts said. "In any other situation the UAE banks represent the best value in the region." But the asset quality of UAE lenders is a legitimate point of concern for the analysts because of the huge growth in loans and advances, sums that remain on the banks' balance sheets.