Stocks gain slightly in April

Author: 
Said A. Al-Shaikh
Publication Date: 
Mon, 2001-05-21 03:54

JEDDAH — Share prices on the Saudi equity market recorded a modest gain of 0.4 percent in April, thus bringing a total increase of only 0.3 percent since the start of the year. The NCFEI All Sectors Index that reached the highest 2,339.1 points on Jan. 18 this year, closed nearly 3.2 percent lower at 2,265 points on April 30, 2001. Although the domestic economic fundamentals and the oil market conditions are still supportive, investors sentiment has not improved during the first four months of this year.


The Saudi stock market capitalization stood at SR255.2 billion at the end of April 2001 compared to SR254.5 billion at the end of December 2000, suggesting an increase of only SR800 million in the wealth of investors. The performance of the six sectors was mixed in April. The banking stocks, which led the upward move and accounted for nearly 47.4 percent of the total market capitalization, rose by 1.21 percent in April, compared with a marginal drop of 0.1 percent in March. The prices of bank stocks are still 0.9 percent down since the beginning of the year, however, giving a combined return of 16.2 percent in the 12-month to April 2001. Accounting for the 4.84 percent current dividend yield, investment in bank shares would have given a total return of nearly 21 percent in one year to April 2001. This, however, does not include any other gain occurring due to bonus shares. The industrial stocks rose marginally by 0.2 percent in April after gaining 0.9 percent in the month before, thus rising by 1.62 percent since the beginning of the year. The prices of the eight cement companies rose by 0.8 percent in April and were up 4.2 percent in the first four months of this year. However, the return in the 12-month to April reached 19.5 percent for the cement sector stocks. Rising construction activities boosted the demand for cement, which in turn underpinned prospects of profitability growth and higher distribution of cash dividends in future. If the current dividend yield of around 6.61 percent were added to the return on the sector’s index, investment in cement stocks would have given a total return of 26.1 percent in the 12-month to April 2001.


Elsewhere, share prices of the services sector rose strongly by 1.6 percent in April on the back of a significant price appreciation for the shares of National Shipping, SASCO and SAPTCO. The prices of all other stocks in the services sector remained under pressure in April as low profitability and uncertainty about cash dividend distribution weakened investors confidence. Share prices of the least capitalized agricultural companies fell by 4.9 percent in April, after a drop of 2.7 percent in March. Share prices of the 10 electricity companies declined by 2.4 percent in April and about 0.75 percent in the first four months of this year. Factors negatively affecting the share prices of electricity companies include the unpaid cash dividends and the delay in the formal corporatization of the Saudi Electricity Company (SEC).


Despite a modest gain in the market index, the value of shares traded rose strongly by 53.6 percent to SR7,371 million in April, bringing the year to date total to SR22,101 million, about 14.7 percent higher than SR19,271 million in the same period last year. In all, 47,783 trade transactions were executed to exchange 56.48 million shares, while the corresponding average value per transaction rose by 8.4 percent to SR154,266 in April, from SR142,310 in March.


The average value per transaction is still considered to be significantly high in relation to per capita nominal GDP, suggesting that small investors are not actively participating in the market.


Shares of the industrial, banking and cement companies dominated trading activities accounting for nearly 92 percent of the total value of traded shares in April. The turnover of industrial stocks rose by 71 percent to SR3,710 million in April, thus bringing the cumulative sum to SR10,145 million in the first four months of this year compared with SR7,094 million in the same period a year ago. In the first four months of this year, industrial companies, dominated by SABIC and SAFCO, accounted for nearly 45.9 percent of the total value of shares traded in the month of April, followed by banks stocks (32.2 percent), cement sector (12.4 percent), services sector (6.9 percent), electricity companies (1.9 percent), and agricultural sector (0.6 percent).


Of the 75 listed companies, the most heavily 10 traded stocks in April included those of SABIC, SAFCO, Al-Rajhi Bank, Riyad Bank, SAMBA, National Shipping, Tabuk Cement, NIC, Saudi Fransi Bank, and Yanbu Cement companies. With 36.3 million shares worth SR5,704 million traded in 29,224 transactions, the top 10 companies accounted for nearly 77.4 percent of the total trading value in April. The combined average value per transaction for the top 10 companies amounted to SR195,183, compared with the overall market average of SR154,266 last month. Being the largest trading company with value of shares traded at SR1,899 million to account for nearly 30 percent of the market, SABIC has had average value per transaction of SR340,637 in April. Ranking fifth in trading value at SR364.3 million, SAMBA has had the second highest average value per transaction of SR218,807 in April.


Nearly 60 percent rise in Saudi equity prices over the last twenty-eight months has given a feeling of exuberance amongst investors, especially in the wake of weakening economies of the industrial countries and the resultant slump in assets prices. The underlying investors’ fear of a possible share prices falloff in the Saudi market has hampered buying interest even though profitability has been strong for many of the listed companies. Based on the first quarter 2001 corporate results, the overall market average price earnings multiple (PE) was 25.28 including the loss-making electricity sector but it goes down to 15.36 if electricity companies were excluded from the computation. With the annualized return on Saudi equity excluding electricity sector of around 13.6 percent at the end of the first quarter this year, the prevailing prices offer attractive buying opportunity to Saudi investors. In comparison to the overall market average PE, share prices of cement stocks appear slightly undervalued while those of industrial and banking stocks are nearly at par with the market average in April. The overall market dividend yield was 4.36 percent at the end of April, but slightly goes down to 4.26 percent when the cash dividend of the electricity companies was excluded from the calculation. Stocks of the service sector companies were being sold at nearly three times the overall average PE, while their average price to book value at 0.89 suggests incorrectly that stocks are significantly undervalued. Stocks of agricultural companies were also relatively overvalued in April.


(The author is chief economist at the National Commercial Bank in Jeddah)

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