QNB bullish on Qatari equities over long term

20/12/2015 07:49 AST

QNB forecast a 6.5 percent increase in earnings by key Qatari equities in 2016. QNB, which covers 17 Qatari equities, said it remains optimistic on the local equity market over long term.

The significant sell-offs driven by declining oil prices have been overdone and we consider most of the equities under our coverage as attractive opportunities, it said in a research note yesterday.

“We forecast a decent 6.5 percent increase in aggregate earnings by key Qatari equities in 2016. We have compiled net income expectations of key Qatari equities that we cover. Factors that can positively reinforce our thesis includes but not limited to improvement in oil prices, positive global economic growth prospects, easing of regional geo-political issues and better than expected earnings from stocks under coverage.

Key risks include: depressed oil prices, increase in volatility, exit of hot money from emerging/frontier markets, etc.”

The valuation will remain attractive. The Qatar Exchange (QE) Index is trading at attractive 2016 multiples, with a P/E ratio of 10.4x complemented by a dividend yield of 5.6 percent.

QNB notes the Qatari equity market remains relatively compelling as compared to its GCC peers with the Bloomberg GCC 200 Index trading at 10.8x 2016 P/E along with a 2016 dividend yield of 4.9 percent.

The Index is currently trading at a TTM P/E of 10.08x vs. its 10-year historical average of 12.95x. This implies that the market is trading at a significant discount of 22.2 percent. Hence, current valuation appears to be inexpensive.

From a historical perspective, the QE Index has corrected by 32.8 percent (27.5 percent annualized) to 9,643.65 as of the 13th of December 2015 from its all-time high of 14,350.50 on September 18, 2014. Like any other market, the QEE Index experienced regular troughs and peaks.

As such, we revisit past periods of significant movements when the Index corrected and subsequently followed through with a major rally. For instance, the Index dropped by 54.8 percent (48.2 percent annualised) and by 66.5 percent (77.8 percent annualised) between 2005-2006 and 2008-2009, respectively. Consequently, the Index gained 112.4 percent (88.5 percent annualised) and 118.5 percent (51.8 percent annualised) during 2007-2008 and 2008-2011, respectively. “We can expect history to repeat itself.”

According to QNB Group, Qatar’s economy is expected to remain resilient to lower oil prices. The country is well-positioned to withstand lower oil prices . QNB Group forecasts real GDP growth will accelerate from 4.0 percent in 2014 to 4.7 percent in 2015 and 6.4 percent in both 2016 and 2017, as the government expands its investment spending program in the non-hydrocarbon sector. The non-hydrocarbon sector is projected to remain the engine of growth in the economy. Its near double-digit expected growth is underlined by strong investment spending in line with the Qatar National Vision 2030. QNB Group anticipates non-hydrocarbon GDP growth at 10.4 percent in 2015, followed by 9.9 percent in 2016 and 10 percent in 2017.

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