Merrill ups Abu Dhabi banks earnings forecast

by This email address is being protected from spam bots, you need Javascript enabled to view it on Sunday, 07 September 2008

EARNINGS UPGRADE: Merrill Lynch has raised the earnings estimates for Abu Dhabi banks. (Getty Images)

Merrill Lynch has raised the earnings estimates for its universe of Abu Dhabi banks on the back of a strong first half and a booming macro outlook for the UAE.

“We still incorporate a drag on earnings momentum due to funding pressures and greater dilution as a result of the need to raise capital,” the investment bank said in a note to investors issued on Thursday.

“With investors currently assessing top down risks in the UAE it is easy to forget the relatively rosy macro picture,” the note said.

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Merrill Lynch estimates that the UAE will post fiscal and current account surpluses of 35 percent and 34 percent of GDP, respectively, for the current year.

Strong real GDP growth, population growth and sizable investment spending in the pipeline further underpins the sector.

“The Abu Dhabi government should provide support but we do not expect it to flush the system with cash for excessive loan growth,” it said.

In the second half, Merrill forecasts 13% loan growth on the first half at its Abu Dhabi banks, with Union National Bank (UNB) and First Gulf Bank (FGB) best positioned in the current funding environment.

Abu Dhabi banks have come off their one year highs by 21 percent to 35 percent and now look attractive even compared to other emerging markets, it noted.

UNB is the bank's top pick in the region, while FGB remains a key stock "with strong growth, proactive management and key Abu Dhabi relationships from the ruling family stake”.

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