The National Investor (TNI)

The National Investor is a leading Abu Dhabi-based investment management and advisory firm.
We have three principal lines of business: Asset Management, Investment Banking and Private Equity.

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TNI Values RAKB at AED 9.47 per share, A potential upside of 14.8%

Abu Dhabi, UAE, 23 January 2008: A research report released yesterday by The National Investor (TNI) found that the National Bank of Ras Al-Khaimah (RAKB) has built a strong retail franchise. Entitled “RAKB: Pearl in the Arabian Ocean”, the report depicted RAKB as a small player in the UAE banking sector with a market share of around 1.7%.

The bank has decided to position itself as a retail specialist, the reports’ analyst said. This has enabled the bank to build a strong retail franchise by increasing its network within UAE and leverage upon a complete array of products and services. In terms of retail lending, it is ranked seventh among the listed banks with a market share of around 4.9%.

“RAKB’s performance during the last couple of years was outstanding on the back of strong credit demand and higher margins on consumer book. But sustaining high margins will be a challenging task as most competitors have renewed focus to aggressively penetrate the retail market. Going forward, we believe that RAKB’s net margin is likely to shrink by 40 bps during the projection period. This should result in a slowdown of net earnings growth of 26.9% for the next three years compared to 39.6% witnessed during 2003-2006,” pointed out Burhan Ali, the report’s analyst.

The TNI report recommended that a possible merger might be a good strategic option for the bank. “RAKB is operating in a niche business segment, which is a lucrative line of business with higher level of risk. However, in the case of RAKB, the asset quality is not showing any signs of stress. GCC banks are diversifying their products portfolio in order to penetrate their local markets, generate economies of scale and increase customers’ loyalty. Therefore, we believe the bank should look for strategic options to strengthen its position on the back of relatively smaller balance sheet size and margin pressure affecting profitability,” the report highlighted.

The report arrived at an AED 9.47 fair value for RAKB. Burhan Ali explained: “We have used two valuation methods, DDM and sector comparables. Our DDM yields a fair value of AED 9.66 per share, an upside of 20.8%. Based on the comparative valuation, the value of RAKB comes out at AED 8.73 per share, an upside of 9.1%. We assign a weight of 80% to the more reliable DDM, and arrive at a fair value per share of AED 9.47, an upside of 18.4% compared to the closing price of AED 8.0″.

According to the report, TNI has a positive outlook on RAKB, despite the fact that sustaining the current market share and margins will be a challenging task in a highly competitive industry. “We believe that the bank should be able to offset the downside risk by 1/ strong growth in the consumer loan book on the back of favourable economic environment and growth in the population and 2/ diversification of non-interest income,” Ali concluded.

About The National Investor: The National Investor (TNI) is a privately owned regional investment banking group. The firm comprises six strategic business units covering investment banking, private equity, asset management, real estate, investment research, and principal investments. In addition, the firm has an associate company, GNSC, which provides brokerage services as a registered member of the Abu Dhabi Securities Market (ADSM) and the Dubai Financial Market (DFM).

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