UNB a Hidden Gem or Ticking Bomb

[sam111sam]

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. 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 ?

[ixtira]

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?

[sharewadi]

Nice report double-sam .
_________________
UAE IPO list | posting guidelines

[burnt_fingers]

@ 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?

let me know what you think about the reasons highlighted

[A.S]

[burnt_fingers]

@ 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/DisplayArticle08.asp?xfile=data/international/2012/February/international_February978.xml&section=international

http://gulfnews.com/business/banking/sanctions-hit-iran-bank-transfers-1.678114

http://www.emirates247.com/most-uae-banks-stop-money-transfers-to-iran-2010-09-05-1.287821

[A.S]

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

[sam111sam]

[newride]

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) !
_________________
HIT THE BEARS & HUG THE BULLS.

[wisk]

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
_________________
sMiLeS AcRoSS MiLeS

[burnt_fingers]

@ 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!

[sam111sam]

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

[burnt_fingers]

@ 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

[sam111sam]

[burnt_fingers]

@ 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 !

[ixtira]

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?

[sam111sam]

[sam111sam]

[sharewadi]

[sam111sam]

[ixtira]

[sam111sam]

[burnt_fingers]

@ 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?

[sam111sam]

One of you guys is buying and better stop now

I have not yet collected enough

In the future I will not share

[ixtira]