Short-Term Rec.: Neutral
Long-Term Rec.: Accumulate
Current Price*: AED 1.10
LT Fair Value : AED 1.26
Cut Estimates, Downgrade to Neutral/Accumulate: Logistic companies tend to be a bellwether for the underlying state of the economy. As such we are materially lowering our forecasts by 37-40% to reflect the economic slowdown. In the short term we believe trading will remain tough for the stock and we reduce our ST rating to Neutral from Accumulate. After adjusting the LTFV to reflect forecast downgrades, our new LTFV of AED1.26 (from AED1.80) offers c15% upside and we move to LT Accumulate from Buy.
FY Results In Line With Expectations: Aramex reported FY2008 results in line with our expectations. While revenues for the year rose 17% Y-o-Y to AED2,080 million and were a bit below our estimates, higher than anticipated margins (both on the EBITDA and Operating profit line) meant that net income of AED147.3 million (up 21% Y-o-Y), was exactly in line with our expectations.
4Q2008 Demonstrated Tougher Market Conditions: The company did witness a slowdown in revenues in the final quarter. Indeed, 4Q2008 revenues of AED500 million (up just 1% Y-o-Y) were short of our estimate of AED542 million for the quarter. However, with Aramex keeping a tight control over its costs in 4Q2008, net profit for the fourth quarter was in line with expectations, up 21% Y-o-Y to AED38.9 million.
Weaker Economic Outlook: Although the MENA region will continue to be driven by regional economic investment programmes, we believe the region will markedly decelerate with the current global crisis. That being said, our Economics team is forecasting weighted non-oil real GDP growth in the MENA region of 4.1% for 2009e.
Forecasting Revenue and Earnings Declines: Therefore, although we believe the company will continue to take market share in a fragmented market regionally, in light of a weaker economic outlook, we now forecast a 5% Y-o-Y decline in top-line growth for 2009e, with a small increase (to flat/zero %) in 2010e across all business segments. Therefore, we lower revenue estimates by 20% and earnings by 37% for 2009e. Our forward forecasts for revenues and earnings fall by more than 30% and 40% respectively.
Strong Position to Absorb Revenue Declines: In order to establish how sensitive the company’s earnings are to a drop in revenues for this year, we undertook a simple exercise. Whilst assuming fixed SG&A expenses to reflect a worst case scenario (i.e. assuming no cost cutting ability), we found that Aramex would still achieve positive earnings if revenues fell by as much as 25% in 2009e.
Long Term Fundamentals Remain Solid: We believe that a well entrenched regional presence, further market share gains and an impressive management team highlights the company’s strengths in the medium to long term. However, in the short term, we suspect trading will remain tough for Aramex given its dependence on the underlying state of the economy.
Again we see reports on a stock that is way below value.
Aramex, is a solid company and i can say withing the arab reigion they have no competition as courier.
Its a company that is growing on daily basis , i know where thery were 10 years ago and where they are now.
from courier to freight forwarding to logistics, is a clear growing trend and growing turnover and profit.
At current market rates, i consider them as a BUY.
Did anyone else get the invite to the AGM to discuss results. There is an item that a 10% share bonus is proposed no dividend. _________________ If this sounds stupid, maybe that is why I am small fry !
Solid, entrenched and good management...and bound to pick up speed as the economy recovers globally. _________________ Nakheel bonds SOLD at a lovely lovely profit...My current holdings right now FGB, Deutsche Bank, Credit Suisse, Barclays and Aldar.
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