GCC-listed companies surpass analysts' profit estimates

GCC-listed companies' performance in the first quarter of 2012 caught investors by surprise, with 56% of companies surpassing analysts' consensus profit estimates. Analysts' estimates were available for 103 GCC-listed companies, of which 58 reported better-than-projected results.

Companies reported a cumulative first quarter profit of US$ 14.1 billion, which was a 12% year-on-year increase compared to a profit of US$ 12.6 billion for the first quarter of 2011. This profitability improvement was the highest for eight consecutive quarters. GCC-listed companies aggregate profits in 1Q/12 were also higher than forecast, after reporting disappointing profits for the previous two quarters in 2011. These findings where in SICO's Research the 'GCC Equities Results Snapshot - June 2012' report.

Bahraini, Kuwaiti and Omani companies reported strong year-on-year growth in the range of 20 to 28% during the first quarter of the year, while Saudi and Emirati companies' profits grew by 10 to 15%. Qatari companies were the exception, reporting a year-on-year decline in profits of 2%, led mainly by non-banks. Most UAE companies (15 out of 24) surprised investors with higher-than-expected profits for the quarter, while Saudi companies disappointed, with just under 50% of companies missing estimates.

GCC-listed companies' aggregate revenues for the first quarter of 2012 increased 8% year-on-year. Real estate, diversified financials, building materials and consumer companies' revenues grew by double digits in the range of 14 to 30%. Overall operating margins improved to 22% in 1Q12 compared with 18% in the first quarter of the previous year; however, operating margins were flat in comparison. Operating margins for banking and insurance institutions, and real estate and building materials companies improved in the first quarter of 2012 compared with quarter one 2011.

Despite ongoing concerns on the GCC real estate sector, 7 out of 9 real estate companies surpassed analysts' estimates, making it the best performing sector for the quarter. Just over 50% of banks beat estimates, while 71% of companies in the 'energy and basic materials' sector missed analysts' estimates.

SICO's report also notes that the GCC markets average daily trading activity during 1Q12 was $2.6bn. However, this dropped by around 16% to $2.1bn during the second quarter of the year, while volumes declined by 21%. Overall, GCC markets are mixed year-to-date, with the Dubai and Saudi markets performing better, producing year-to-date gains of 7.5% and 4.3% respectively. After increasing by around 15% in the first quarter of 2012, the S&P / IFC Global GCC Price Index declined by 11% for the second quarter.

According to Mr Jithesh Gopi, Head of SICO Research: "We believe that the recent correction in GCC markets offers attractive entry points, and investors should selectively start accumulating stocks with a long-term outlook."