TNI Initiates Coverage on First Gulf Bank with a Fairly Priced Recommendation

Abu Dhabi, UAE, 25 November 2007: The current economic boom should continue to drive the growth of the UAE banking sector in the foreseeable future, as study by The National Investor (TNI) revealed yesterday. A favourable macroeconomic backdrop, along with increased government and private spending on infrastructure projects, has underpinned the strong growth of the UAE banking sector. In terms of aggregate asset size, the UAE emerges as the largest in the GCC region with $273bn as compared to $250bn recorded by Saudi Arabia at the end of Q2/07.

Of all UAE banks, First Gulf Bank (FGB) has been the fastest growing commercial bank in the UAE, the study showed. It grew assets at a CAGR of 87.6% during the last three years, more than twice the rate of the ten largest banking networks (+38.4%). In terms of balance sheet size, FGB’s market share increased from 1.3% in 2001 to 7.1% in 2006. “Due to such significant growth, the bank is now competing with the leading UAE banking players, a definite upgrade from its historical status of medium-sized bank,” said Burhan Ali, who prepared the report.

“FGB’s performance this year was positively surprising, largely due to a diversification of its revenue stream. With a capital adequacy ratio (CAR) of 21.3% at end 2006 vs. the legal requirement of 10%, the bank remains clearly over-capitalised. It has used such excess capital to expand successfully into real estate and promoting new ventures. Going forward, we will be monitoring FGB’s performance to assess its ability to continually convert equity into high-yielding businesses,” he pointed out.

TNI used two valuation methods, DDM and P/B analysis. “Our DDM yields a fair value of AED 20.2 per share, an upside of just 0.9% to the closing price of AED 20.0. With FGB currently trading at a book value multiple of 2.6x against a sector average at 3.0x, and assuming convergence towards industry benchmarks, the bank is worth AED 21.4 per share, an upside of 7.2%. We assign a weight of 80% to the more reliable DDM, and arrive at a fair value per share of AED 20.4, an upside of 2.2% compared to the closing price of AED 20.0,” Burhan Ali explained.

TNI initiated its coverage with a fairly priced rating. “Our outlook on FGB’s fundamentals remains positive and we recognize the potential for additional earnings surprises in the future. However, with an absolute stock performance of 63.9% YTD corresponding to a sector out performance of +35.2%, we feel that a Fairly Priced recommendation is justified,” the TNI report 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).