Emirates NBD Gains After Bank Raised to Buy at EFG: Dubai Mover

Emirates NBD PJSC advanced the most in more than a week after the biggest United Arab Emirates bank was raised to buy at EFG-Hermes Holding SAE, which cited attractive valuations boosted by an economic recovery in Dubai.

The shares increased 2.5 percent, the most since March 13, to 4.05 dirhams at the close in Dubai, bringing the rally this year to 42 percent. The stock was the biggest gainer on the benchmark DFM General Index, which rose 0.6 percent. Emirates NBD’s price estimate was raised to 5 dirhams from 3.2 dirhams at EFG, implying a 23 percent upside from today’s close.

“Dubai banks are attractively priced in both a historical and regional context,” Dubai-based Shabbir Malik and Riyadh-based Murad Ansari said in an e-mailed note today. “Dubai remains committed to maintaining the economy’s growth momentum going forward, which we believe is positive for Dubai banks.”

Dubai Islamic Bank PJSC, the country’s largest Islamic lender, was also raised to buy with a price target of 2.8 dirhams, up from 2.1 dirhams. The shares climbed 0.5 percent to 2.08 dirhams today.

U.A.E. banks are showing signs of recovery after the global credit crisis weakened lending, crimped investment banking and spurred loan defaults. Emirates NBD’s fourth-quarter profit more than tripled while Dubai Islamic’s rose 85 percent. The stock trades at a price-to-book value of 0.6 times and Dubai Islamic at 0.8 times, compared with 1.4 times for the Bloomberg GCC Financial Index.

Spending Binge

The government is projecting economic growth for Dubai, which went on a spending binge to turn itself into the Persian Gulf business hub before the global credit crisis, of 4 percent this year. Dubai officials announced plans for mega projects in November, including a district featuring the world’s biggest shopping center, as the emirate is set to benefit from a rebound in property prices.

Banks in the U.A.E., including Emirates NBD, have asked the central bank for permission to free up more funds for the real estate and construction industries as they seek to revive credit growth. Emirates NBD’s rally this year compares with a gain of 3.5 percent for Dubai Islamic and outpaces an advance of 18 percent for the DFM General Index.

Excluding EFG, three analysts recommend investors buy the shares of Emirates NBD, while three have a hold rating and one says sell, according to data compiled by Bloomberg. One analyst recommends buying Dubai Islamic, while one says hold the shares and three say sell.

Commercial Bank of Dubai PSC, whose stock has rallied 28 percent this year, had its price estimate raised 35 percent to 4.2 dirhams at EFG. The investment bank maintained its hold recommendation on the shares.

Before it's here, it's on the Bloomberg Terminal.