Daman Annual Press · PDF fileSource: Bloomberg, Daman Investments 4 Recap of the markets...

Daman Annual Press Briefing 16th January 2017

A. Recap of the markets

B. Outlook for FY 2017

C. Daman plans going forward

2

Key Sections

A. Recap of the markets

3

Source: Bloomberg, Daman Investments 4

Recap of the markets – Nov’14 Press Briefing

Event: Nov’14 Press Briefing Daman Projections: • Strong finish to 2014 and we forecast rally to

extend towards Q1 2015. Beyond Q1 2015, the outlook becomes ambiguous at best, given the increase in capital market activities in the form of IPO's.

• Our retail dominated markets will go through cycles of liquidity shortage depending on the size and the timing of the IPO's.

• Both Dubai and Abu Dhabi are trading at premiums to book value as compared to yesteryears.

Projected Outlook: Negative / Expensive Valuations

-25.2%

-9.4%

65.6%

-30.8%-22.6%

-9.1%

61.9%

-27.3%-40%

-20%

0%

20%

40%

60%

80%

DFMGI ADSMI Daman Fifth Fund Daman SecondEmirates Fund

% Returns after the Nov-14 Press Conference

12M 18M


Recap of the markets – Sept’13 Press Briefing

83.1%

30.1%

244.4%

66.6%41.9%

15.8%

368.7%

34.2%

0%

100%

200%

300%

400%


% Returns after the Sept-13 Press Conference

12M 18M

Event: Sept’13 Press Briefing Daman Projections: • We do not expect any significant reversal in the

current rally and in fact we are in the midst of a strong multi-year bull cycle.

• Given the heavy real estate component of the DFM Index (ca.20%) and the benign outlook for the sector for the rest of the year, we believe from a sentiment perspective the market remains well supported.

• We continue to be optimistic about the prospects for dividends in 2013 given the strong trends in corporate profitability, which will result in higher dividends in absolute terms.

Projected Outlook: Positive



Event: Sept’12 Press Briefing Daman Projections: • Despite strong run in our markets in Q1'12 (DFM

+21.8% and ADX +6.3%), the market remains attractively valued from a historical P/E basis and on a P/B versus ROAE basis.

• Dubai is still the cheapest market in the GCC on a price to book basis. Therefore, the valuation case for Dubai continues to be an argument for further upward potential.

• Q1 rally was not a mirage given strong macroeconomic numbers and robust earnings momentum from corporates but a lot of good things need to happen in order to maintain suitable rally.


75.0%

47.5%

26.5% 22.1%

181.9%

87.9%

165.8%

102.9%

0%

40%

80%

120%

160%

200%



12M 18M



Event: Sept’11 Press Briefing Daman Projections: • The Fixed Income window of opportunity has

closed down...This may be precursor to the resurgent appeal in equities after a 5-year downward journey.

• However, we do not expect a sharp or sudden reversal of fortune for equities just yet...

• Daman views the present and year ahead as the most attractive investment environment in the UAE since the crash of 2008. However, this in no way means a bull market ahead, as there are still no signs of investors gaining confidence to declare the crisis over.


10.3%

2.8% 3.4%

-0.9%

27.8%

19.4%

8.1%6.0%

-5%

0%

5%

10%

15%

20%

25%

30%



12M 18M

B. Outlook for FY 2017

8

-20%

-10%

0%

10%

20%

30%

40%

Bahrain Kuwait Oman Qatar KSA UAE

Fiscal Balances as a % of GDP

Average 2009-14 2015 2016E 2017E

9

2016 proved to be a difficult year from macroeconomic perspective…2017 may not improve dramatically

• Oman has highest exposure of Oil and Gas revenues at 87.9% of total government revenues compared to 63.5% for the UAE.

40%

50%

60%

70%

80%

90%

Bahrain Kuwait Oman Qatar KSA UAE

Oil Revenues as a % of Total Government Revenues, 2014

Source: IMF, Regional Statistics Offices & Regional Ministries of Finance Source: IMF, Regional Statistics Offices & Regional Ministries of Finance

• The Average fiscal deficit for the GCC countries is expected to deteriorate from 7.1% of GDP in 2015 to 9.4% in 2016. GCC Fiscal deficit to remain at 6.7% in 2017.

Kuwait & UAE expected to report lowest fiscal deficit in 2016 among

GCC peers

10

GCC market indices have remained sluggish over the last 24 months

60

70

80

90

100

110

120

Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16

Reb

ased

Market performance of key indices (Jan 2015 - Dec 2016)

DFMGI ADSMI MSCI GCC

+2.2%

-4.3%

-12.4%

Source: Bloomberg, Daman Investments DFMGI = Dubai Financial Market General Index ADSMI = Abu Dhabi Securities Market Index MSCI GCC = MSCI GCC Countries Index

11

Market volumes in the UAE have remained lackluster in the last 12-24 months

Source: Bloomberg, Daman Investments

0

500

1,000

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Apr

-14

Sep-

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5

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-16

AED

mn

DFMGI Average Daily Value Traded (AEDmn)

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AED

mn

ADSMI Average Daily Value Traded (AEDmn)

Jan’15 (AED 693.8mn) Jan’15 (AED 207.9mn)

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High Beta stocks have performed better than blue-chip stocks in 2016


Small/Mid-Cap Stocks Market Cap

(AED mn) Dec'16 Q4'16 2016

Union Properties 4,488.13 23.6% 51.7% 52.3%GFH Financial Group 4,468.04 14.7% 82.9% 313.4%SHUAA Capital 1,565.55 -1.3% 66.7% 264.5%Gulf Navigation Holding 893.70 1.3% 40.0% 159.7%Hits Telecom Holding 410.92 -0.6% 15.8% 51.0%

Large-Cap Stocks Market Cap

(AED mn) Dec'16 Q4'16 2016

Emaar Properties 51,406.93 4.5% 0.4% 25.3%Emirates NBD 46,685.31 5.1% 4.0% 14.7%Emaar Malls 33,967.32 0.8% -3.7% -5.1%DU 28,342.86 8.2% -4.6% 21.6%Dubai Islamic Bank 27,478.57 6.3% 2.8% -9.9%

Dubai Financial Market General Index

302,932.22 5.06% 1.63% 12.06%

Dubai Financial Market - 31st December 2016

Small/Mid-Cap Stocks Market Cap

(AED mn) Dec'16 Q4'16 2016

Eshraq Properties Co 2,371.50 5.1% 25.3% 89.1%Emirates Driving Co 2,229.54 27.6% 18.1% 27.6%Union Insurance Co 722.78 15.0% 11.8% 59.4%BILDCO 195.00 8.3% 20.4% 44.4%Methaq Takaful Insurance 150.00 7.1% 2.3% 50.0%

Large-Cap Stocks Market Cap

(AED mn) Dec'16 Q4'16 2016

Etisalat 163,933.81 0.8% -6.0% 16.8%First Gulf Bank 57,600.00 10.8% 8.9% 1.6%NBAD 52,878.69 6.3% 8.8% 25.5%ADCB 38,329.84 11.3% 7.0% 4.7%Aldar Properties 20,442.84 6.0% -1.5% 13.4%

Abu Dhabi Securities Market Index

443,490.84 5.51% 1.56% 5.55%

Abu Dhabi Securities Market - 31st December 2016

Bahrain

Kuwait

Oman

Qatar

KSA

UAE

0%

100%

200%

300%

400%

500%

600%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Fina

ncia

l Res

erve

s as

a %

of G

DP

Oil as a % of total GDP

Financial reserves as % of GDP vs. Oil as % GDP vs. Government subsidies as % of GDP (2015)

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UAE seems to be better positioned among the GCC economies

Size of bubble reflects Government Subsidies as a % of GDP

Source: IMF, Regional Ministries of Finance, Daman investments; Note: Financial Reserves in 2015 = Official Reserves + Sovereign Wealth Fund Assets

Most of the GCC governments have taken several actions to bridge fiscal deficits such as:

• Subsidy reforms

• Access to debt market

• Introduction of taxes (VAT)

• Divestment of state-owned enterprises

• Consolidation of business entities

14

Introduction of VAT in the UAE: Myth vs. Reality

Source: IMF, CFA Society Emirates, Daman Investments

• UAE plans to exempt healthcare and education sector and 150 essential food

items from VAT , thus, limiting the negative impact on welfare spending.

• An introduction of 5% VAT by UAE in 2018 is too low to significantly impact selling prices of consumables .

Myth 1: VAT will lead to increase in prices of essential commodities

• Academic papers studying the impact of implementation of VAT in Canada, UK and the US shows that introduction of VAT at a rate of 5%-10% have only marginal impact on inflation.

• UK’s introduction of VAT at 10% in April 1973 have not meaningful impact on inflation. Whilst Canada’s introduction of Goods & Sales (GST) tax at 7% in January 1991 lead to rise in inflation from 5% to 7% in 4 months.

Myth 2: VAT implementation will lead to higher inflation

• Rather than merely a tax-free status, UAE’s appeal resides in economic and political stability, world-class business infrastructure, free trade zones, access to growth markets in Asia and Africa, competitive labor, and less trade barriers.

• UAE government expects to generate revenues worth AED10-12bn in the first year of implementation of VAT that is expected to help government maintain fiscal stability and improve business competitiveness in the long-term.

Myth 3: VAT will have negative impact on FDI

Dubai

Abu Dhabi

KSAQatar

KuwaitOman

0.5

1.0

1.5

2.0

0% 4% 8% 12% 16%

Pric

e-to

-boo

k

ROE

Price-to-Book vs ROE

"Expensive"

"Cheap"

31st December 2016 31st December 2015

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Market valuations remain attractive


UAE companies appear to be appealing vs. GCC peers

16

GCC equities are trading at attractive valuations compared to their historic 5-year averages.


0

5

10

15

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25

DFMGI ADSMI TADAWUL DSM MSCI UAEDomestic

MSCI GCC

Average P/E ratio of major GCC markets

Average (2011-2015) 2016

17 Source: Deloitte, MEED, Daman Investments

Bahrain2.97%

Kuwait 8.22%

Oman 6.49%

Qatar 8.57%

KSA38.91%

UAE34.84%

Net value of projects in pre-execution in the GCC - By Country

Total GCC = USD 2,020 bn*

Construction 52.43%

Transport19.03%

Power10.97%

Chemical 5.50%

Oil 4.26%Gas

4.00%

Water 2.31%

Industrial 1.49%

Net value of projects in pre-execution in the GCC - By Sector

Total GCC = USD 2,020 bn*bn

* Note: Value of Projects as of H1 2016

KSA & UAE will continue to lead when it comes to projects

18 Source: : IMF, Various National Media, Daman Investments

UAE government spending has remained resilient in 2016

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140

2013 2014 2015 2016E

UAE Govt. Spending in USD bn

0%

10%

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40%

2013 2014 2015 2016E

UAE Govt. Spending as a % of GDP

Dubai is currently working on multi-billion dollar projects. Some of the key projects are as follows: • Dubai Metro Extension: Estimated cost of approx. USD 3bn

• Al Maktoum Airport: Estimated cost of approx. USD 33bn

• Expo 2020 event: Estimated cost of approx. USD 2.7bn – USD 3.3bn

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USD

per

bar

rel

WTI Crude Oil Prices

19 Source: Bloomberg, Daman Investments

Crude oil prices expected to remain range-bound between USD50-USD60 in 2017

• Crude oil prices have stabilized from a free fall

to a more stable environment.

• The consensus view is that the oil prices will be range-bound within USD 50-USD60. We tend to agree with this view.

• This is the first time in several years that OPEC has taken concrete steps to cap production, which implies the following:

• A predictable crude oil price environment

• Improvement in investor sentiments in the GCC due to the predictable nature of key commodity prices and clarity of macroeconomic policies and government actions.

• We believe that a stable and predictable oil

price trajectory will be a positive for the economies in 2017.

+105%

20

Views on the Geopolitical situation

• Syria remains a long drawn problem in the region; however, we believe that the general security situation in the regions remains in control.

• We believe Iran will continue to strive to be integrated with the global mainstream economy. • Inward investments into the country is the need of the hour. • However, the process of integration will be evolutionary rather than a sudden gush.

• Daman’s view:

• The GCC region has withstood several difficult periods in the recent past such as Global Credit Crisis (2008-09), Arab Spring (2011) etc.

• The region has shown resilience in the past and has the ability to adapt to the difficult and changing environment and emerge stronger from these crisis events.

• We believe that the GCC environment will be able to withstand the current low oil prices environment on the back of initiatives such as: • Subsidy reforms • Access to debt market • Introduction of taxes (VAT) • Divestment of state-owned entities / Consolidation of business enterprises

21 Source: Bloomberg, Daman Investments

UAE Banking sector

• UAE banks remains well-capitalized with average dividend yields on offer at ca. 6% for 2016E. • UAE bank’s P/L hurt by higher provision charges in 2016. With the introduction of Basel – III, we expect

to see increase in provisions for banks. This will likely dampen bank’s P/L in short-term, however, it remains long-term positive for banking industry.

• Limited improvement is expected in the Net Interest Margins (NIMs) due to rising Cost of Funds and

the banks’ inability to reprice assets upwards due to stiff competition.

• Sector consolidation remains long-term positive in the UAE give high credit penetration vs. GCC peers ; but we see this as a long-term story.

22 Source: Bloomberg, Dubai Land Department, Halifax, Daman Investments

UAE Real Estate sector

• Oversupply in the real estate sector in Dubai led to 22% y-o-y decline in the value of total real estate transactions in 2016.

• Dubai’s Residential Property Sales price Index has been declining since Q2’15; however, the pace of decline has slowed recently.

• Dubai developers remains less prone to the impact of cancellations/defaults on projects that are under construction due to strict payment plans and attractive rental yields .

• In terms of valuation, Dubai remains an affordable investment destination vs. other global cities with average 2015 P/E ratio at 4.3x vs. 5.9x for New York and 19.0x for Hong Kong.

0.0

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apor

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ng

Average 2015 price/earnings ratio

0%

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Dubai UAE New York London Hong Kong

Gross Rental Yield

23

Key Conclusions on Market Outlook for 2017

• Daman has a proven track record when it comes to gauging investor sentiments and projecting market outlook.

• From macroeconomic perspective, 2017 may not turn out to be significantly different from the difficult period seen in 2016. However, we believe that 2017 remains an important year for what it holds for the bright outlook that we see ahead.

• We believe that 2017 will provide a spring-board to benefit from the investment opportunities on the back of:

• Subsidy reforms • Access to debt market • Introduction of taxes (VAT) • Divestment of state-owned enterprises • Consolidation of business entities • Rise in Event-driven activities (e.g. Expo 2020 in the UAE)

C. Daman plans going forward

24

25

Asset Management • Daman Asset Management offers international-calibre investment management services with a local

presence. • Current Offerings include:

• Provide best-in-class bespoke portfolio management services investment products focusing on core competencies – GCC / MENA / Africa.

• Coming up with new family of funds with targeted offerings to include: • Equities and debt-based absolute return funds on GCC / MENA countries & regions • Alternative investments focusing on specialist themes, strategies

• Engagement with institutions to widen distribution network.

Daman Asset Management

Mutual Funds Discretionary Portfolios

Structured Products

Non-Discretionary

Portfolios

26

Daman Mutual Funds Performance versus Benchmark Indices Daman Funds 2016 2015 2014

Daman Second Emirates Fund 10.00% -26.27% 20.85%

Daman Islamic Fund 5.79% -25.07% 8.49%

Daman Speculator Fund 25.92% -48.23% -26.82%

Daman Fifth Fund -4.10% 46.82% 269.59%

Country Indices 2016 2015 2014

Dubai Financial Market General Index 12.06% -16.51% 11.99%

Abu Dhabi Securities Market Index 5.55% -4.89% 5.56%

Saudi Stock Exchange Index (TASI) 4.32% -17.06% -2.37%

MSCI UAE Domestic Index 7.92% -17.88% 10.76%

MSCI GCC Countries Index 5.07% -16.72% -2.17%

27

Deal Structuring & Advisory Department Offering

Daman’s Deal Structuring & Advisory (DSA) offers Unparalleled &Unique Investment Opportunities in the PE and VC space. Current product portfolio includes:

Hospitality Food & Beverage Tech and Others

PE & VC Platforms • Tech platform • F&B platform • Hotel platform

Advisory • M&A Advisory • Restructuring • IPO Advisory • Corporate Advisory

28

Daman Securities (Brokerage)

Mobile Trading App got awarded DFM GITEX Award for 2016.

Extending trading services to NASDAQ Dubai.

Providing market research services for client knowledge and informed decisions.

Real time call center for customers.

Extending geographies by entering new markets.

New Advanced online trading through • Daman Mobile App • Daman Pro (standalone trading software) • Daman web-trading platform

29

Key Conclusions – Daman Plans for 2017

• Daman focus has been to diversify its income streams away from the traditional areas of Investments.

• Asset Management: The division is working towards: • Creating bespoke products to cater to inbound and outbound GCC funds • Improving its distribution reach by partnering with established entities • Creating white-labelled products for targeted clients • Developing client-centric Wealth Management solutions for Ultra-High Net Worth individuals and

institutional clients

• Deal Structuring & Advisory: Along with continuing advisory functions in M&A, Corporate Finance and Restructuring, we have also made strides into lucrative and promising sectors which are aligned with the UAE 2021 vision, such as:

• F&B • Technology • Hospitality

• Daman Securities: This company is working towards:

• Improving its reach through the launch of mobile trading app and online trading support • Providing margin-trading support • Focused on acquiring new trading accounts and deepening existing relationships • Extending geographies by entering new markets

Thank You!

30

This document has been prepared by Daman Investments PSC at your request and is for private use only. It documents the investment strategies and opportunities identified by Daman Investments PSC and it does not constitute investment advice nor is it intended to be an offer to buy or sell or a solicitation of an offer to buy or sell any investment product(s)/asset class(es) mentioned in this document, nor an incentive to invest. The investment product(s)/asset class(es) described in this document may not be eligible for sale or subscription in all jurisdictions or to certain categories of investors. This document is intended for publication and distribution to the recipient only and may not be passed on or disclose to any other persons. This document is not intended for distribution to a person or within a jurisdiction where such distribution would be restricted or illegal. It is the responsibility of any person in possession of this document to investigate and observe all applicable laws and regulation of the relevant jurisdiction. This document may not be conveyed to or used by a third party without our express consent. Daman Investments PSC is not responsible for any error which may be occasioned at the time of printing of this document. The investment product(s)/asset class(es) described in this document is/are destined to investor(s) who possess sufficient knowledge, based on their own experience, to evaluate the advantages and the risks inherent to such investment product(s)/asset class(es). Prior to making an investment decision, you should conduct such investigation and analysis regarding the investment product(s)/ asset class(es) described herein as you deem appropriate and to the extent you deem necessary, obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognize fully the legal, financial, tax and other risks arising in respect of such investment product(s)/asset class(es) and the purchase, holding and/or sale thereof. Daman Investments PSC hereby expressly disclaims any obligation, or liability whatsoever, and it shall not be responsible under any circumstances or in any way, irrespective, contractual or non-contractual for any fiduciary responsibility or liability for any consequences, financial or otherwise, or any damages and loss including but not limited to compensations, charges, expenses and /or implications, direct and/or indirect, incidental, collateral, special or exceptional related to or arising from any reliance placed on the information in this document, failures, errors, interruption, defect, delay and / or the fluctuations of prices, if any, and in any or all transactions, securities, assets, sales assumptions, and proceeds from sales or transactions and actual collections are subject to change of sales prices timing of collections whatsoever, unless a written conclusive official evidence may prove a gross negligence, fraud or willful misconduct on the part of Daman Investments PSC.

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