A number of local initial public offerings (IPO) is planned for the coming months amid ripe valuations and investor appetite for UAE stocks.
Earlier this month, the Bank of London & The Middle East announced an intent to list its shares on the Nasdaq Dubai in October. The move will mark the bourse’s first listing in almost five years.
The news was then followed by two new IPO announcements during the past week. Just Falafel, a few years old and not really popular company is considering a 25 per cent listing of its shares on the Nasdaq Dubai. This announcement looks more as a promotional effort or a future plan than a real short term intention. On the contrary, Damac Properties’ announcement about intentions to float a London share sale seem as genius move planned to transform in an optimum way a vast portfolio of prime mostly UAE-based properties into billions.
The renewed confidence among UAE companies illustrates a change in attitude towards raising capital from equity markets. Once again, valuations have become interesting and give room for founders to realize good value from selling their companies.
UAE shares traded at 10 times earnings about a year ago. For a company to go public, they would have to be valued at five to seven times earnings. Today, the ratio is 12 to 13 times earnings. That means IPOs can come to the market with 10 times earnings. It gives the founders incentive to cash in.
Equity markets have rallied over the past year, as the nation’s laggard stocks have come to better reflect the UAE’s strong economic fundamentals.
The Abu Dhabi Securities Exchange General Index has gained about 45 per cent this year. The Dubai Financial Market General Index has risen almost 65 per cent.
There have been a very few new listings from UAE companies in recent years as low valuations and thin trading volumes deterred companies from going public.