FGB price estimate up on dividend expectation

DUBAI: Investors should buy First Gulf Bank PJSC (FGB) shares before year end as the lender, controlled by Abu Dhabi’s ruling family, will offer a 7% dividend yield, JPMorgan Chase & Co said, raising its price estimate.

JPMorgan, which has a “buy” rating on the stock, had increased its price forecast for the Abu Dhabibased lender’s shares to 13.5 dirhams from 13 dirhams, analysts including Naresh Bilandani said in a report dated Oct 19. That represents a 36% upside from last week’s closing price.

The analysts’ projected dividend yield for FGB exceeds the 4.6% average for banks traded on the benchmark ADX General Index, according to data compiled by Bloomberg.

FGB will maintain its strong shareholder value-driven approach. — JPMORGAN

Shares of FGB have rallied 29% this year through Oct 18, compared with a 10% advance for the Abu Dhabi gauge and a 13% gain for the ADX Banks Index. FGB trades at 7.7 times earnings compared with 9.3 times for Abu Dhabi’s measure.

“We see FGB’s current valuation not fully pricing in scope for attractive dividend from this name and we recommend that investors buy FGB shares ahead of year-end” to benefit from the dividend yield, JPMorgan said.

“FGB will maintain its strong shareholder value-driven approach and focus on unlocking value by returning capital through higher dividends.”

The lender is set to increase its dividend yield to 7.7% in 2013 and 8.9% in 2014, according to JPMorgan estimates.

FGB may today report a 10% advance in third-quarter profit to 1.01 billion dirhams (US$275mil), according to the mean estimate of five analysts compiled by Bloomberg. The bank’s stock was unchanged at 10:32am in Abu Dhabi yesterday.

Sixteen analysts recommend investors buy the shares, while one has a hold rating on the stock, according to data compiled by Bloomberg. — Bloomberg