Aramex stronger than appearances suggest

Less-than-exciting growth last year masks strong underlying operations at Aramex, and its share price is expected to get a boost after first-quarter results.

Aramex, an international courier service listed in Dubai, is an interesting proposition. For last year, the company reported a full-year net profit of Dh211.5 million, a modest increase of 4 per cent on 2010. In the same period, the company's revenue reached Dh2.57 billion, up 16 per cent from 2010.

However, analysts at NBK Capital, who rate the stock as a "buy", believe this modest growth does not represent the whole picture.

"Our outlook for 2012 is positive, and we expect to see growth in the bottom line. In our opinion, the fact that core markets remain healthy, with fundamentals for trade activity in the GCC intact, coupled with the expected positive contributions from acquisitions, should lead to a 16 per cent increase in revenue," the analysts said in a note.

Acquisitions are a key part of the strategy at Aramex. This week, Fadi Ghandour, the company's chief executive said the company might go to the debt market for the first time since 2005to find funds for growth through purchases. He said the company would be able to do this because of its strong capital position.

Today, Aramex has Dh280m of cash or equivalent reserves. This is down from Dh536m at the end of 2010, reflecting the spending drive on which the firm embarked last year to strengthen its presence in key emerging markets. That programme included acquisitions in Africa and Ireland, and a joint venture in China.

If the fallout from the Arab Spring is no greater for Aramex this year than it was last year, NBK expects to see a 15 per cent increase in net income, which could trigger a rally on the stock price after Aramex's upcoming release of its results for this year's first quarter.