This could be a good one to consider (depending on number of shares and financial information etc). Generally airlines don't seem to be good prospects for profitable enterprises but Air Arabia became profitable quite quickly after launch - from memory, they expected to break-even after 3 years of operations but was profitable after 2 years of operations.
Press Release 22 Jan 2007 wrote:
Air Arabia announces plans for Initial Public Offering in Q1 2007
22 January 2007
• First Gulf-based airline to go public
• Highly profitable business model
• Has carried more than 3.4 million passengers
• SHUAA Capital appointed Lead Manager
Air Arabia, the Middle East's first low-cost carrier, announced today that it has applied to the UAE Ministry of Economy and relevant regulatory authorities for approval to launch an Initial Public Offering (IPO) in the first quarter of this year. The Sharjah-based airline, which began operations in October 2003, will become the first airline in the Gulf region to go public.
Sheikh Abdullah Bin Mohammad Al Thani, Chairman of Air ArabiaAir, said: "We are extremely pleased to announce that Air Arabia has submitted its application to the UAE Ministry of Economy to convert the carrier into a public shareholding company ahead of a planned IPO. Upon approval, the airline will launch its IPO."
He continued: "In just over three years since launch, Air Arabia has established itself as one of the region's great success stories. Born in Sharjah and serving a region that stretches across the Middle East, North Africa, Indian subcontinent and Central Asia, Air Arabia has set its sights on reaching even greater heights."
SHUAA Capital has been appointed the Financial Advisor, Lead Manager and Bookrunner for the IPO.
Having served more than 3.4 million customers since it began operations and currently serving 32 destinations, the company has been profitable since its second year of operations.
Adel Ali, Chief Executive Officer of Air Arabia, said: "The decision to go public was prompted by our desire to increase our equity capital to support our ambitious plans for future growth. As well, we are keen for our customers, staff and stakeholders to share in the success of Air Arabia through this IPO."
He continued: "Based on both the individual success of Air Arabia and the growing demand for commercial and leisure travel in the region, we are planning to expand the company's current operating fleet over the next five years from nine Airbus A320s to a total of 34 aircraft."
Makram Kubeisy, Managing Director of SHUAA Capital's Investment Banking Advisory, said: "We are pleased to be associated with Air Arabia's IPO, which is a landmark for both the sector and the region. We believe that local and regional equity markets are an attractive source for growth capital for companies with a successful track record, such as Air Arabia. Indeed, the carrier is financially sound and has a strong management team that has significantly grown the business and profitability in a remarkably short span of time."
-Ends-
About Air Arabia
Air Arabia was established in February 2003 by an Amiri decree issued by His Highness Dr. Sheikh Sultan Bin Mohamed Al Qassimi, Ruler of Sharjah and Member of the Supreme Council of the United Arab Emirates. The company began operations in October of the same year.
Based in Sharjah and with a fleet of nine Airbus A320 aircraft, Air Arabia serves 32 destinations across the Middle East, North Africa, Indian Subcontinent and Central Asia, including Afghanistan, Bahrain, Egypt, India, Iran, Jordan, Kazakhstan, Kuwait, Lebanon, Oman, Nepal, Oman, Qatar, Saudi Arabia, Sri Lanka, Syria, Sudan, Turkey and Yemen.
Air Arabia is modeled after leading American and European low-cost airlines and is customized to local preferences. Its main focus is to make air travel more convenient through Internet booking and offering the lowest fares in the market without sacrificing on service or safety standards.
For further information, please contact:
Nicholas Nesson/Bakul Gala
ASDA'A Public Relations
Exclusive Affiliate of Edelman, Middle East & North Africa
Dubai, UAE
Tel: 971-50-4785324 / 50-2459547
Fax: 971-4-3356080
E-mail: n.nesson at asdaa.com / b.gala at asdaa.com
UAE’s Air Arabia will offer AED 2,400 mn, or 55% of its capital (AED 4,400 mn), to investors though an Initial Public Offering (IPO) on the 18th of March.
How many times oversubscribed will this one be? And share price when listed?
2006 EPS is 2.3 fils (or 0.023 dhs) assuming 4.4 billion shares and par value of 1 dh per share.
They must be expecting a huge jump in profits in the next couple of years. At par, trailing PE using 2006 earnings will be about 50.
Last three IPOs haven't been great (ARKAN, GULFNAV, DFM) for those who leveraged to buy in so maybe the enthusiasm will have worn off.
I'll pick listing price of 1.00 to 1.50 dhs and less than 100x oversubscribed. A bit of a wild guess, if/when full 2006 financial accounts and IPO prospectus is available, I may revise those estimates. _________________ UAE IPO list | posting guidelines
Gulf News has a two page pull out section with details including a list of Founding Shareholders (not seen it online yet - nothing on air arabia website).
Air Arabia IPO open to foreigners. Both UAE nationals and foreigners need a DFM investor card. Information I'm looking at doesn't say a resident visa is required, just a passport copy.
55% of total equity on offer - 2.57 billion shares at 1 dh each plus 0.02 offering costs (works out to about AED 51m - should be enough to pay for the stationery).
Total shares outstanding 4,666,700,000
Listing will be on DFM (Dubai Financial Market). No listing date seen yet.
Shuaa Capital is Financial Advisor, Lead Manager and Bookrunner.
18 March 2007 - Air Arabia IPO offering opening date (go to one of the Receiving Banks for application forms).
27 March 2007 - offer closing date.
08 April 2007 - Allotment date.
11 April 2007 - Refund date for receiving banks in the UAE.
14 April 2007 - Refund date for receiving banks in the GCC.
Biggest stakeholders are
Sharjah Department of Civil Aviation - 490m shares
Al Maha Holding - 420m shares
Sharjah International Airport Authority - 322m shares
Emirates Today reports Abraaj Capital as buying a minority stake in Air Arabia via its new Infrastructure and Growth Fund. Not sure if that's particularly important. _________________ UAE IPO list | posting guidelines
Not much that isn't already in the previous post, except for words like "tremendous", "growth", "expansion", "profitable" ...
press release wrote:
Air Arabia's AED2.5 billion IPO opens on March 18
Air Arabia, the Middle East's first low-cost carrier, shared details of its upcoming initial public offering (IPO), scheduled to open on March 18, 2007.
Upon completion of the IPO, Air Arabia shares will be listed on the Dubai Financial Market.
Air Arabia is the first airline in the Middle East to go public. The total size of the offering is AED2,566,700,000 consisting of 2,566,700,000 shares, representing 55 per cent of the company's share capital, at an offer price of AED1 per share, in addition to AED 0.02 in offering costs.
The IPO is the largest offering in UAE history and will be open to both UAE and non-UAE nationals, including both individual and institutional investors. The ten-day IPO will close on March 27, 2007. SHUAA Capital is the Lead Manager, Financial Advisor and Bookrunner for the IPO.
The low-cost carrier has also announced that Abraaj Capital has demonstrated its support for Air Arabia's upcoming IPO by acquiring a strategic minority stake through its newly launched Infrastructure and Growth Capital Fund.
Sheikh Abdullah Bin Mohammad Al Thani, Chairman, Air Arabia, said: 'We are grateful to the Ministry of Economy for approving our IPO. Air Arabia's strategic objective is to be one of the leading airline companies in the region. The IPO is happening at a very opportune time, when our business is developing rapidly and gaining in strength. We welcome everyone to be part of Air Arabia.'
Adel Ali, Chief Executive Officer, Air Arabia, said: 'The IPO is a strategic tool to achieve our stated vision to be one of the world's leading budget airlines in terms of profit margin, innovation, reputation and operational excellence. Air Arabia's IPO is an opportunity for investors to be part of a growing company that is dynamic and has proven its mettle within a short span of time.'
The company intends to use the proceeds from the offering, in addition to bank financing, to expand the size of its existing fleet from nine to at least 34 aircraft by 2016. In addition, Air Arabia aims to expand its scope of operations and acquire additional spare engines.
Makram Kubeisy, Managing Director of SHUAA Capital's Investment Banking Group, said: 'We strongly believe that Air Arabia's IPO will be extremely successful. It is the UAE's largest IPO to date and the first to see an airline go public in the Middle East. The company has an impressive track record and financial performance.'
'Air Arabia has a strong and capable management team that has grown the business and offering considerably over the last few years. The fundamentals of the company, coupled with its future plans, indicate a very positive future for Air Arabia,' Kubeisy added.
Karim Schoeib, Senior Vice President of SHUAA Capital's Investment Banking Group, said 'Air Arabia is a unique company that has achieved tremendous growth and profitability as reflected by the increase in its income to AED749 million in 2006 compared to AED411 million in 2005, an increase of 82 per cent. The company also posted a net profit of AED101 million last year, up 222 per cent compared to AED31.3 million in 2005. Air Arabia has transported over 3.3 million passengers at economical fares, while adhering at the same time to the highest standards of safety and comfort.'
Subscription to the offered shares will be through four tranches. Tranche (I) is a retail tranche with a size of 250,000,000 shares, and is open to UAE and non-UAE resident subscribers with minimum subscriptions of 10,000 shares and maximum of 50,000 shares. Additional subscriptions in tranche (I) will be in multiples of 5,000 shares and allocation will be done on a pro-rata basis, with a minimum allocation of 1,000 shares per subscriber.
Tranche (II) is designated for high net worth individuals and institutional investors, both UAE and non-UAE, with a size of 2,116,700,000 shares. Subscriptions will start at 55,000 shares with any additional shares being multiples of 5,000 shares. Allocation will be done on a pro-rata basis.
Tranches (III) and (IV) are for 100,000,000 shares each, and they are slated respectively for current employees and retirees of the government of Sharjah, and management and employees of Air Arabia. Subscriptions in tranche (III) are for a minimum of 5,000 shares, while subscription in tranche (IV) will be for a minimum of 10,000 shares. All allocations will be done on a pro-rata basis, with a minimum guaranteed allocation of 5,000 shares for tranche (III) and 1,000 shares for tranche (IV).
The National Bank of Abu Dhabi has been appointed as the Lead Receiving Bank. In addition, investors will be able to subscribe at receiving banks both in the UAE and the GCC.
Receiving banks in the UAE are: National Bank of Abu Dhabi, Abu Dhabi Commercial Bank (ADCB), Mashreqbank, Dubai Bank, Dubai Islamic Bank, Emirates Bank, First Gulf Bank, InvestBank, National Bank of Fujairah, National Bank of Umm Al Quwain, Sharjah Islamic Bank and Union National Bank.
Receiving banks across the GCC are: Ahli United Bank, Bahrain; Ahli Bank, Qatar; and National Bank of Oman, Oman.
Allocation of shares among subscribers will take place on April 8, 2007, with refunds for subscribers in the UAE on April 11, 2007, and for those in the GCC on April 14, 2007.
Assuming a float price of 2 dhs, here's what the PEs look like (halve them for price of 1 dh i.e. par value):
2006 earnings: AED 101m - PE 87.1
2007 earnings: AED 226m - PE 38.9
...
2011 earnings: AED 369m - PE 23.8
Based on earnings, they look like they'll be expensive shares to own for the next few years. Market average PE is about 12-15 at the moment.
In the Air Arabia IPO prospectus in the press Tuesday, there was mention of a dividend payout ratio policy of 25% of earnings. So for 2007, you could expect 56.5m dhs paid out. With 4.4 bn shares outstanding, that works out to about 1.3 fils per share. If share price is 2 dhs, then dividend yield is about 0.65%.
Many stocks on the UAE markets are putting out cash dividend yields of 2-10%. As Air Arabia is in a period of significant growth, it doesn't really make sense for them to be paying out any dividends. _________________ UAE IPO list | posting guidelines
The comments from the CEO of Air Arabia are useful though. He's predicting 6.2% growth per annum until 2025. Assuming that's correct, is it fair to assume similar growth in earnings?
According to Shuaa's report, earnings growth between 2006 and 2011 is about 13% per year (from 226m dhs to 369m dhs).
Using Mr Ali's projected 6.2% growth rate, I'd put a fair value on Air Arabia shares between 0.40 and 0.60 dhs now, rising to 0.70 to 0.90 dhs by the end of 2007. They might be worth 2.50 to 3.00 by 2025.
Using Shuaa's 13% growth rate, estimate fair value for Air Arabia shares now as 0.50 to 0.70 rising to 0.90 to 1.10 by the end of 2007. And up to 8 or 9 dhs by 2025.
Alternatively, if we assume average market PE is 15 (it's probably lower), then at a share price of 1.00 dhs, you'll be waiting until 2009 before Air Arabia shares are in line with the market if earnings growth is 13%.
At a share price of 2.00 dhs, you'll be waiting until 2015 for the Air Arabia PE to be in line with the market average. It's worse if you use Mr Ali's growth rate.
Some caveats:
So far, Air Arabia has grown faster than they said they would.
Earnings growth may be more than air traffic and passenger growth.
Profit in 2006 was AED 101m, prediction for 2007 is 226m. If 2007 figure includes IPO income then that distorts everything. If it doesn't include IPO income, then that's a huge jump in profit from 2006.
I may be wrong with my assumptions and/or calculations.
Using 2006 figure of AED 101m as a start point to calculate growth rate will give us a rate much greater than 13%. That may be too optimistic in the light of the CEO's comments.
Who wrote this:
Air Arabia IPO subscription open to both UAE and non-UAE individual and institutional investors
Air Arabia's eagerly awaited AED2.5 billion initial public offering (IPO) opens on Sunday, March 18, 2007.
The ten-day IPO will be open from March 18, 2007, until March 27, 2007.
Who wrote this:
Adel Ali, Chief Executive Officer, Air Arabia, said: 'We encourage all investors to subscribe to Air Arabia's IPO and become a proud owner of shares of the most successful and exciting low-cost carrier in the region. By participating in this offering, investors will become personally involved in the growth of a business that is part of their own lifestyle.'
He added: 'The regional airline industry is witnessing robust growth. According to Airbus, passenger traffic in the Middle East will grow at an annual rate of 7.1 per cent through 2015, compared to a global average of 5.3 per cent. Over a 20-year period, from 2006-2025, Airbus predicts robust average growth of 6.2 per cent. We welcome investors to be part of this growth story.'
The company intends to use the proceeds from the offering, in addition to bank financing, to expand the size of its existing fleet from nine to at least 34 aircraft by 2016. In addition, Air Arabia aims to expand its scope of operations and invest in the infrastructure associated to the fleet expansion.
Rody Yared, Head of Syndicate at SHUAA Capital, said: 'We anticipate significant demand for Air Arabia's IPO due to the strength of the company's fundamentals and its strong financial footing, which will spur demand among both local and international institutional investors. Air Arabia also enjoys a strong brand name, which makes it an attractive investment across the various investor segments.'
Of course, we're talking about the float amount. Air Arabia goes down the queue a bit if you look at total capitalisation (eg DFM is AED 8 billion, Dana Gas is AED 6 billion, Air Arabia is AED 4.7 billion).
Some good points made about lack of financial information in the prospectus, but there is some available in the Shuaa report on the Air Arabia IPO - estimates and forecasts admittedly rather than hard facts. And I'm not sure that at 1 dh per share the Air Arabia IPO is underpriced. See previous posts.
AME info 18 Mar 2007 wrote:
Will the $700m Air Arabia IPO fly?
The decision of the Sharjah Government to privatize its low-cost airline Air Arabia with the launch of a $700m IPO this week will be studied around the world. Global stock markets have lost $3 trillion in value over the past few weeks, and the UAE bourse crashed in 2006.
Air Arabia is the Middle East's answer to budget airlines which have been a big success all over the world in the past decade. This business model pioneered by Southwestern in the US and Ireland's Ryan Air in Europe has dovetailed with the expansion of booking on the Internet to provide low-cost air travel for the masses.
This week the Sharjah Government is privatizing its recent start-up Air Arabia with the sale of 55 per cent of its shares to the UAE national citizens and residents, government pensioners, the management and staff.
IPO pricing
As traditional in such IPOs in the UAE the issue price for the stock is Dhs1, which most likely under prices the issue. What then happens is that applicants borrow money to buy as many shares as they can, and that means they get a lot less than they apply for in the final allocation.
However, such is the level of demand stirred up in this rush for the under priced shares that when they are traded on the stock market itself a premium is almost guaranteed. The only question is whether the premium will be high enough to pay any borrowing costs, or be worth the hassle involved in shuffling the money around to buy rather less shares than applied for.
What this process does not usually involve is the presentation of the sort of financial data required to do a 'due diligence' analysis on the company as a business prospect.
Prospectus limited
The Air Arabia IPO announcement in the Gulf News was no different. There is a very impressive list of founding shareholders from the Sharjah business community. There is a dividend policy of paying out 25 per cent of income 'subject to bank financing, working capital and capital expenditure requirements'.
This is how an IPO is done in the UAE and there have been many successful issues, particularly when the stock market was booming in 2004-2005. The applicants are protected by the low Dhs1 price per share but they do place their money in the hands of a company largely on the basis of trust rather than hard financial data.
That said Air Arabia has flown millions of passengers in its short life and fills a gap in the market for budget travel. Elsewhere in the world investors have made good profits from backing this business model and whatever the short-term turbulence of global and local markets, the long-term future looks bright for Air Arabia.
Air Arabia shares don't sound very cheap at 1 dirham per share when i look at your calculations but the ame article says there'll be underpriced. What about the book value? Is that somehting to calculate?
I read somewhere that Air Arabia plans on a 25% dividend policy every year. Wanted to know how they can do that ? Also if someone can tell how is the AME article claiming the share price 1DH underpricing ??? Mr moderator how did u calculate the fare value of the share that u hav posted ???
I read somewhere that Air Arabia plans on a 25% dividend policy every year. Wanted to know how they can do that ?
Yes, it's in the Air Arabia IPO Prospectus. As for how they can do that, it's common for companies to have a dividend policy similar to this and usually it's stated somewhere (not often in the UAE though - I'm impressed to see Air Arabia have made such a statement).
Who wrote this:
Dividend Policy
The Company is expected to adopt a dividend policy of distributing at least 25% of its net income as dividend payments subject to bank financing, working capital and capital expenditure requirements. Dividend payment will be upon the recommendation of the Company’s Board of Directors and the approval of the General Assembly of Shareholders.
Who wrote this:
Also if someone can tell how is the AME article claiming the share price 1DH underpricing ??? Mr moderator how did u calculate the fare value of the share that u hav posted ???
You'll have to ask AME how they do that .
Share value calculations were by reversing calculation of market PE (increased to allow for early growth) with estimated earnings. It's a bit clumsy because 2007 earnings estimate is more than double 2006 earnings, that's why I've given a range.
stockgirl, book value may be a better number to use in this case but trying to find out the value of the company for the calculation is difficult. That may be what other reports were referring to when they said financial data was lacking. _________________ UAE IPO list | posting guidelines
This is the only comment I've seen so far indicating subscription levels for the Air Arabia IPO. And it doesn't really say anything. You start to wonder how popular it really is...
Who wrote this:
Bullish demand for Air Arabia IPO
SHUAA Capital, the Lead Manager and Bookrunner for the Air Arabia IPO, announced today that initial subscription levels data indicate a strong appetite for the low cost carriers' offering.
The Air Arabia IPO opened on the 18th of March and will close on the 27th of March. On offer is 55% of the Company's share capital, a total of 2,566,700,000 shares at a par value of AED1 per share in addition to AED0.2 as offering costs.
Rody Yared, Senior Vice President Syndicate at SHUAA Capital, said: 'From the start of the subscription period, the issue has witnessed considerable demand across the retail investor segment. Additionally, Air Arabia's IPO has been very attractive to institutional investors, both locally and internationally'.
Early on in the subscription period, the UAE Ministry of Finance and Industry took a 5 per cent stake in the offered shares, the maximum allowed to it under the law.
'The positive response we have had from institutional investors comes as a reflection of their confidence in the performance of the Company to date and the robust future outlook for the low cost carrier airline sector.' Yared added 'Subscription levels come as proof that the appetite for good and solid transactions via an IPO as an investment avenue has not been dampened by the performance of the regional financial markets.'
Allocation of shares among subscribers in the Air Arabia IPO will take place on the 8th of April 2007, with refunds for subscribers in the UAE on the 11th of April 2007 and for those in the GCC on the 14th of April 2007.
Since my post yesterday, I've heard a couple of comments that the Air Arabia IPO is expected to be well oversubscribed, but no actual estimates. Tomorrow is the last day. I'll stick with my initial estimates. _________________ UAE IPO list | posting guidelines
There was a press release out today saying just that. Not worth reading though, it only says the same as previous press releases - receiving banks blah blah blah, biggest IPO blah blah blah.
Does anyone know what is the listing date for Air Arabia stock on DFM? There seems to be no press release after their Founding General Assembly of 10-May?
I haven't seen or heard anything about Air Arabia's listing date for DFM yet. Sometimes there can be a bit of a delay between IPO and actual listing - RAK Properties IPO seemed to drag on for months. DFM IPO was about 3 months before listing.
I had read in the Gulf News that the shares will be listed on 17th May ... did'nt mention the year ... hehehehe ... prob meant in 3 days time but I doubt if they will make that date ... we'll juss hav to wait an c ...
I missed the Gulf News article ZP. Will try and find it later. This was in ET this morning, but I don't see Air Arabia share price quotes on ESCA or DFM marketwatch screens ...
Nothing on disclosures list for DFM either - usually there would be something on the day a new company was listed.
Emirates Today 17 May 2007 wrote:
Air Arabia shares likely to fall during market debut
MATT SMITH BUSINESS REPORTER
Analysts are pessimistic about the likely performance of Air Arabia when it debuts on the Dubai Financial Market today.
The Sharjah-based budget airline could be in for a rough first day’s trading as subscribers to its initial public offering (IPO) try to claw back their investment.
The company raised only around half of the expected Dh2.57 billion from its IPO in March, with investors unexpectedly receiving their full requested application. The IPO shares were sold for Dh1.02 each.
“People have been selling the shares over the counter to friends for as little as Dh0.80,” said Sherif Abdul Khalek, Al Futtaim Securities Dealing Room Manager.
“They are heavily leveraged and didn’t expect to receive so many shares and so had to sell the excess.” Sherif said these investors would probably retain their remaining holding for the longer term in the hope of recovering their losses.
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