UNB a Hidden Gem or Ticking Bomb

Foreign ownership to 40%

UNB a Hidden Gem or Ticking Bomb

Postby sam111sam » Fri 09 Mar 2012 18:17

Background
UNB established in 1982 with 50% owned by Abu Dhabi Investment Council, 10% owned by Dubai Government, few other Semi-gov shareholders from other emirates but not expicilty disclosed as they are below 5% limit. My estimate for the shares held by the non-gov shareholders are less than 30% of the 2500m share

Performance
I can only find performance data starting 2006,The bank has been performing very well Profits grew from 1100m to 1500m over the past 5 year. The bank seems to be conservative..it grows slowly but surely. No sudden growths also no bad surprises over the past "challenging" 5 yrs. The provisions for bad debt did not grow that much during 2008, 2009, 2010, although 4Q 2011 witnessed Dhs 300m provision which was mainly related to one of the Dubai semi-gov groups.

Cash Dividend
Also conservative in dividend cash payments, it keeps most of the profit re-invested in the pand and they would pay on 25% to 35% in cash. Yet that small percentage is still very good. UNB paid 35 Fils on 2006, 20 fils on 2007, 10 Fils on 2008, no cash for 2009, 10 Fils for 2010, and soon it will pay 15Fils for 2011. It has also paid share dividend of 10% most of these years

Profits
Over the past 6 yrs the lowest Profit per share has been around 46 Fils in 2009 while the highest is 60 Fils this year. The current P/E ratio is a great 5.3 , which makes UNB share the cheapest bank in UAE (average P/E 7.8) and the GCC (average above 9). In fact at P/E 5.3 UNB may be the cheapest stock in UAE

Book Value
The book value of the bank is Dhs 4.38 while it te stock is trading at 3.1, so the Price/Book value (P/Bv) is 70%, makes it again the cheapest bank share price in UAE with most active commercial banks trading close just above book value (except for Emirates Bank which is 50% of Bv). GCC banks trade 30-80% higher than book value. Book value of the banks has been proven to be the only accurate books without hidden bombs and surprises... all the banks, not just UNB (thanks to Central Bank)

Trading Volumes and Investors
The main problem with the share price is the very limited trading on banking sector in general, and this bank in specific. Again very similar to Emirates Bank.. Most banks shares are non-Shariaa compliant so most moselms prefer not to trade in these shares.. As for the "non-islamic" mutual funds they would avoid trading in stocks which are not liquid as the need to deal with larger investment that would need to be invested or liquidated on short notice as investors deposit or cash out from the fund. That would leave the very limited trading mainly within the hands of smaller non-shariaa investors.

Looking Forward
Most valuation reports put this bank on the top spot for gains potentials... Best in the whole GCC for expected gains based on Fair Value estimated between 3.9 and 5.8.
I would expect the bank's 2012 profit to increase next year to 70 Fils as the extra provision of 4Q does not repeat, Hence the bank would be in a good position to pay 25 Fils in cash dividend (nice 8% cash return)...Which would be still 35% of the profit compared with 50% average in GCC ( look at FGB, DIB, ENBD they have pall paid higher % in cash)

This share is more for investment rather than for swing trading , impossible for day trading...
The bank is now making much more profits than 2007 and 2008 UAE boom years, while most other shares listed are hardly making half the profits of 2007/2008 (Emaar, Aldar, DIC, Tamweel, Tabreed, ...etc)..So why this share is not bouncing back?

Is it forgotten and kept by the BB to make a final kill ? or Is it hiding some black secret ?
Last edited by sam111sam on Mon 12 Mar 2012 18:46, edited 1 time in total.
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Postby ixtira » Fri 09 Mar 2012 21:57

Sam ... Great job defining the mystery that is UNB

But dont leave keep us hanging like this :? ... is it skeletons in the closet or those mysterious BBs ...

Whodunit?
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Postby sharewadi » Sat 10 Mar 2012 00:44

Nice report double-sam :).
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Postby burnt_fingers » Sat 10 Mar 2012 01:09

@ Sam

when i say that your knowledge supreme, this post is only an example of it.

great report, study and analysis.

to answer the question u posted at the end, my veiws are as follows:

1) % of "high return in quick time" investors. i feel overall, this is high and therefore we see specific shares moving
2) lack of domination - if the stock is so good, chances for speculators to break differnt price levels and get the prices they deem right, in both supprot as well as resistance levels
3) in general being a bank share versus a real estate or a services sector. if you see, overall the best performing bank, interms of trade, is FGB... banks like ADCB, NBAD, CBD, MASREQ dont trade as much. this makes me think, that may be the speculators may have inside info to this bank in specific, versus others
4) being part of ADX versus DFM, ADX has always been less tradable, for reasons beyond me, and always been like a second perfernce.
5) lastly, the bank is very conservativ as you said, i believe its marketing strategies are very sublte compared to its counter parts, especially on their retail side.

to be honest, after reading your post, theres a lot that i have learnt in terms of the finance bit of this bank and has got good respect and consideration for my choice. thanks for the insight. but even after writing the above points, now i myself am itching my head and thinking...why? :lol:

let me know what you think about the reasons highlighted
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Re: UNB a Hidden Gen or Ticking Bomb

Postby A.S » Sat 10 Mar 2012 02:24

sam111sam wrote:The main problem with the share price is the very limited trading on banking sector in general, and this ...


[edit by moderator]Arabic text removed, please see forum guidelines and PM about posting in Arabic, and about posting reports and articles from other sources. Thanks.[/edit]

sam if only you can make small reserch if this bank has any transaction with iran as i have read today that the banks in uae are losing money cause of iran sanction sorry couldnt get it in inglish you can use google translation and let us know what you think . basicly its talking abut noor al islam bank
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Postby burnt_fingers » Sat 10 Mar 2012 05:01

@ A.S

the translation is not very clear, but yeah talking about noor islamic on the same.

however, "swift" in general is not channeling any transaction to iran.

here's some of the local link for your ref

http://www.khaleejtimes.com/DisplayArti ... ernational

http://gulfnews.com/business/banking/sa ... s-1.678114

http://www.emirates247.com/most-uae-ban ... 5-1.287821
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Postby A.S » Sat 10 Mar 2012 12:07

UNB is amazing i want to buy the share and i dont want to face any surprises later any way i have some 1 in unb if there is anything bad will update all members :lol:
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The "Curse" of Bank Shares !

Postby sam111sam » Sat 10 Mar 2012 12:27

ixtira wrote:But dont leave keep us hanging like this :? ... is it skeletons in the closet or those mysterious BBs ...


burnt_fingers wrote:1) % of "high return in quick time" investors. i feel overall, this is high an...
5) lastly, the bank is very conservativ as you said, i believe its marketing strategies are very sublte compared to its counter parts, especially on their retail side. ...


Most banks are hated by BB (exception: DIB) because they can't make any profits out of trading in these shares. This is the main "curse" that follows most banks: trading volumes.

As I explained in the other thread BB are not investors, they are short terms traders. They deal in 10's-100's of millions. They need volume and volatility to make money. They need a quick "pump and dump" followed by slow boring "kill and collect". The BB feeds on retails investors

Because banks are not Shariaa complaint (exception DIB, ADIB, SIB) much of the retail investors would not deal in bank shares. This makes it very hard for the BB to dump., ...no volumes

I think 90% of the daily trading in UAE is generated by very short term investment (days or weeks). There are very very few guys that would buy with the intention of holding for 2-3 yrs and enjoy 5-6% cash return plus 10% capital appreciation annually. Everyone, wants to make 30% in few weeks and exit ...then wait for another hype to do the same... Yet most of these guys are actually making losses at the end of the year

When the market celebrate a great day with huge volumes and 2-3% index gains with lots of "limit up's" you would see the most bank shares are stable or dropping ! Do you know why ?
Because traders who had their money locked in bank shares, wait for the BB to jump in, but they don't. They see all the shares going up except their shares.. At the end they would just sell at any price hoping to free some cash to join the party on other shares...But it is too late already. Then they would curse the day they locked their capital into bank shares.

As long as the above mentality dominate, it will be harder for the bank shares to shine ... I'm betting this will change if DFM/ADX would join MSCI. Foreign funds target large banks because the books are cleaner

The only share that I have seen UAE investors buy to hold used to be Etisalat... UAE national used to buy this out of their monthly savings to enjoy long term capital growth and a nice "growing" Shariaa complaint cash return of 5-7%. That used to be the case till DU killed the Etisalat monopoly high profit business model.

Now banks offer the same opportunity like Etisalat did 20 yrs ago, but they are NOT "Islamic Complaint" investment vehicle... They deserve to be priced at 8-10 P/E like FGB and NBAD

Yet, Banks will be the best performing sector in 2012...my bet :lol:
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Good work!

Postby newride » Sat 10 Mar 2012 14:22

Dear Sam.. Thanks for sharing so much.. All this does really makes sense ..! Thanks for making it even more interesting.. Keep up the great work...Experience speaks (Y) ! :wink:
HIT THE BEARS & HUG THE BULLS.
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Thank you Sam

Postby wisk » Sat 10 Mar 2012 21:08

Thanks alot sam for keeping ur promis on detailing about UNB...

Am medium to long term investor, hence to buy out of 3.16 / share and current price of 3.03 does not bother me particurly when there is 15 fils dividend and future growth and dividends...

As mentioned long time back, I hold Vodafone since Feb 2006 on LSE and now its more than doubled by price appreciation and with DRIP (Dividend Re Investment Plan) which automatically reinvest the dividends in stock...

This option is not here I believe in UAE... however, UNB desrve to be kept for 2-3 years atleast... and who knows it price go to 10 :-)
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Postby burnt_fingers » Sat 10 Mar 2012 23:59

@ Sam

Given your analysis abt the bank, in comparison, isnt ADCB on a similar level of growth? The share price now is similar to unb, but has reached to these levels after touchn a low of 1.27. I had bought into it @ 1.34, and had sold out cheaply @ 1.75. Since then it has only progressed on the up.

Also with their take over of RBS theyr a bigger franchise.

What are ur analysis for it and where do c it hitting in a years time, and compared to unb?

@wisk

Thanx for the info on the drip... New terminology in my glossary!

:wink: :wink:
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Postby sam111sam » Mon 12 Mar 2012 19:25

Wisk

If you go with the same formula as FGB, then fair price should be 7-8 Dhs in one year... look at FGB P/E and P/Bv and adjust UNB price to be the same ratio's...Not sure of the best time to buy,...it may fluctuate between 3-3.2 for longer time. I think it will drop below Dhs3 after the dividend pay out.


burnt_fingers

You can't compare UNB with ADCB.. ADCB made Dhs1B proit from "ONE TIME" non operational profit this year from selling some business unit. Otherwise the operational profit would have been 44 Fils only compared with 60 Fils for UNB. Also book value is Dhs 3.92 vs 4.38. UNB has a great 6 years record of clean books, ADCB record is not good.
As such, UNB is worth 20-25% more than ADCB

P.S I also had ADCB at 1.4 and sold it years ago at 1.8 thinking I'm great trader :lol:
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Postby burnt_fingers » Tue 13 Mar 2012 00:13

@ sam

I c ur point. However, i m sure with the acquiring of rbs operations i m sure the value wd b high. 1st quarter results wd probably show sumthing on these lines. U may correct me accordingly :)
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Postby sam111sam » Fri 16 Mar 2012 10:43

burnt_fingers wrote:I c ur point. However, i m sure with the acquiring of rbs operations i m sure the value wd b high. 1st ...


Read this recent report...
Both ADCB and UNB has a Strong Buy rating..but big difference in target price

http://content.argaam.com.s3-external-3 ... a19ca7.pdf
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Postby burnt_fingers » Sat 17 Mar 2012 19:35

@ Sam,

first, i want to commend you on the pick. you have been following this company for a very long time and you are "bang on" with the reading of the company performance.

secondly, went throught the report, by far, the company is really a very good "investment" strategy. but i still wonder why not many pick on this stock. from my perspective, the only bank in AUH that should attract trades should be this one.

Well, anyways for me, i shall try and seek a good entry point and hold till end of this year !
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Postby ixtira » Sat 17 Mar 2012 23:13

Every year UNB receives fair valuations of 5-6AED per share ... but the price stays at 3

Sam : I think you have explained the current share-price clearly and articulately ... I've come to expect nothing less :)

... but why should the share-price change now ... what's different in 2012?
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Postby sam111sam » Sat 17 Mar 2012 23:47

burnt_fingers wrote:i still wonder why not many pick on this stock. from my perspective, the only bank in AUH that should attract trades should be this one. " ...


three reasons:

Very Low Liquidity
Because the share is mostly held by investors rather than traders, you will see very little volume... If you trace the volume history you will see "spikes" in random days. these are rather misleading as these spikes result typically from a single multi-million transaction that I think is arranged between two fund managers or institutions.
Traders and fund managers hate the very low liquidity because it makes it very hard to get or out ... specially if you are dealing in lotss of millions.

Non-Shariaa Compliant
I would estimate that 60-70% of UAE investors refuse to deal in this kind of shares for religious reasons. In fact, many of the brokers don't even allow it on their trading system

Volatility
As I wrote above this is not a share where you can go up (or down) 50% in few weeks. So it is NOT fun to trade. NO VOLATILITY
If you look at the two strong correction days on March 6,7 when most active shares lost 20%, you will see UNB losing only 4%, that was fully recovered on the following session

The same applies to EmiratesNBD to a large extent...also most non-islamic banks except for FGB

Remember, the market sometimes choose to ignore certain share and wake up suddenly when the rally is triggered with a large volume buyer.

My previous pick was Tabreed which was trading at 40-60 Fils for 3 months when we had all these long discussion... There was no reason or news what so ever for the share to suddenly wake up and make that run ! You just don't when will be the run (usually happens that day after sharewadi sells his shares :lol: )

P.S
I'm not suggesting that UNB will make a similar run.
On the short term their ill be other liquid shares that will out perform UNB
Last edited by sam111sam on Sun 18 Mar 2012 01:54, edited 1 time in total.
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Postby sam111sam » Sat 17 Mar 2012 23:51

ixtira wrote:but why should the share-price change now ... what's different in 2012? ...


I'm expecting Sharewadi to give up and sell his shares :lol:
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Postby sharewadi » Sun 18 Mar 2012 17:15

sam111sam wrote:I'm expecting Sharewadi to give up and sell his shares :lol:

Ha. I didn't know you knew I had UNB shares. But I'm keeping them ... unless I need more rent money :).
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Postby sam111sam » Tue 20 Mar 2012 09:38

sharewadi wrote:Ha. I didn't know you knew I had UNB shares. But I'm keeping them ... unless I need more rent money :).


Don't sell

UNB is likely to show very good 1Q, the stock seems to be under carefull accumulation as the price does not drop on the panic days.

The main problem of UNB is liquidity... so don't put all your money there.. It can be hard to liquidate even few million Dhs, not to mention Sharewadi's investments !

By the way, how much is the rent ? :lol:
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Postby ixtira » Tue 20 Mar 2012 16:00

sam111sam wrote:Price does not drop on the panic days ...


Or go up on the good days... The accumulation on the bad days is matched perfectly with dispersion on the good days.

I'm sure they will have a good quarter (can't recall them ever having a bad quarter).

In any case if Sharewadi and yourself are in then I'm in ... If all goes wrong then I will have some company in the homeless shelter :)
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Postby sam111sam » Tue 20 Mar 2012 16:49

ixtira wrote:In any case if Sharewadi and yourself are in then I'm in ... If all goes wrong then I will have some ...


Wrong choice...one of us (Sharewadi or I) is enough to bring any share down. Imagine two :lol:

4Q was not good because they had to take provisions on Dubai Holdings. This is affecting the share price, fortunately for us to collect some

It will break out suddenly ...mark my words !

This is not a share that you hold for swing trading, only good for investment. It should book 70 fils profit in 2012 and pay our 20-25 fils.
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Postby burnt_fingers » Wed 21 Mar 2012 09:34

@ Sam

you may be right about the price movement. i have been reading many reports and UNB is one of the top 5 picks for UAE.

there was an article in Gulf News as well this Sunday hinting a move for UNB.

but given the scneario and sentiment, took take a while i beleive.

what is an entry point for ADX market according to you?
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Who is buying UNB ?

Postby sam111sam » Wed 21 Mar 2012 13:27

One of you guys is buying and better stop now

I have not yet collected enough

In the future I will not share :wink:
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Re: Who is buying UNB ?

Postby ixtira » Sat 24 Mar 2012 09:16

sam111sam wrote:One of you guys is buying and better stop now


Nightmare I've not even had a chance to reinvest the 2011 dividend

... quick somebody talk it down :) ... start a rumour that they want to merge with Amlak :shock:
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