Best Abu Dhabi Stock Sputters as Etisalat Readies for MSCI

  • Company's four-day decline pared gain this year to 51 percent
  • Telco to be included in MSCI's EM gauge from Monday's close

Abu Dhabi’s best-performing stock in 2015 is showing signs of fatigue, just as it prepares to join MSCI Inc.’s emerging-market index.

Emirates Telecommunications Group Co. declined for four days through Sunday, its longest losing streak since Aug. 11, paring its advance this year to 51 percent. The shares, which had climbed to the highest valuation in about eight years based on future earnings, fell below their 50-day moving average for the first time in more than two months. They rebounded 1.7 percent on Monday at 10:50 a.m. local time.

Etisalat shares are falling and foreign investors are taking profits ahead of formal inclusion in the MSCI EM Index.
Etisalat shares are falling and foreign investors are taking profits ahead of formal inclusion in the MSCI EM Index.

Investors piled into Etisalat, as the company’s known, after the United Arab Emirates opened its biggest telecommunications operator to foreign ownership in September, a step that also put the shares on course for inclusion in MSCI’s gauge. As a result, the company bucked a stock selloff across the region sparked by a plunge in the price of oil, the source of most government revenue in the six-nation Gulf Cooperation Council.

Etisalat shares have “overshot in terms of valuations," said Yazan Abdeen, who manages $220 million of Middle East and North African assets at Jeddah, Saudi Arabia-based Sedco Capital. “The premium for the stock is partly justified by the MSCI inclusion, but not by the company’s fundamentals. It’s not sustainable. Something has to give, either the valuation or the growth."

Saturated Market

Etisalat got 57 percent of revenue from its home market, where almost every resident has two mobile lines, one of the highest rates in the world, according to the World Bank. The stock closed at 13.7 times future earnings on Sunday, compared with a ratio of 8.4 for the ADX General Index in Abu Dhabi, where it’s listed, according to data compiled by Bloomberg.

At three multiples higher than the forward P/E ration for MSCI EM Index's, Etisalat is trading at the biggest premium in more than nine years.
At three multiples higher than the forward P/E ration for MSCI EM Index's, Etisalat is trading at the biggest premium in more than nine years.

Abdeen, who doesn’t own Etisalat, sees better opportunities in telecommunications companies in Saudi Arabia, Qatar and Kuwait. His biggest holding is in Viva Kuwait Telecom, which trades at about 10.8 times estimated earnings for the next 12 months. The MSCI EM Index is valued at 11.1 times forward earnings.

Etisalat will join the gauge as of the close of trade on Monday. U.A.E. markets will be closed from Tuesday for national holidays, and will resume trading on Sunday.

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