Biggest UAE lender seen extending rally as index review nears

DUBAI: First Abu Dhabi Bank PJSC’s stock has gained in six of the past seven weeks, bringing the rally for the year to 37%. A beckoning index-weighting upgrade means more joy could be in store for shareholders.

The biggest lender in the United Arab Emirates is expected to have its weighting in the MSCI Emerging Markets Index doubled to almost 0.2% in November, when the index compiler announces the results of a review.

The stock now meets liquidity requirements that fulfill an increase in representation, opening room for it to attract as much as US$455mil in inflows, according to estimates by EFG-Hermes Holding and Arqaam Capital Ltd.

The lender, known as FAB, was formed in 2017.

This was done through the merger of National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC as the local government sought to cut costs and boost competition amid a slump in oil prices.

The state-controlled lender alone represents 43% of Abu Dhabi’s ADX General Index, which is up 11% this year, compared with a loss of 8.3% for stocks from developing economies.

“We expect FAB to see its liquidity adjustment factor removed this November due to improved liquidity since the merger,” said Mohamad Al Hajj, equities strategist at the research arm of EFG-Hermes in Dubai.

“The stock could remain supported by inflows until the MSCI event, especially given the size of the expected flows, and the potential active inflows on top of the passive ones.”

MSCI is expected to announce its semi-annual index review on Nov 13, with implementation in December.

FAB has advanced 5.7% since the bank last month reported second quarter net income that beat analyst estimates.

The lender also said it expects profit to climb as much as 10% this year, upgrading earlier guidance of mid-single digit growth.

“FAB is on the right track with an upward revision in its lending-book growth guidance and lower provisioning charges,” said Chiro Ghosh, a financial institutions analyst at SICO BSC.

Cost synergy efforts that are likely to add 1.5 billion dirhams (US$408mil) to earnings by 2020 “are also moving as planned,” he said.