Profitability of Oman's listed firms fall in 2008

PROFIT FALL: Corporate profitability declined in 2008 for first time in four years. (Getty Images)

Corporate profitability of listed companies, which make up Oman’s principal stock index, declined in 2008 for the first time in nearly four years, according to a market analyst.

Steep declines in the earnings of industry sector firms and banks contributed to a 3.5 percent slide in the aggregate earnings of Muscat Securities Market Index (MSM 30 Index).

Company earnings fell to OMR437.16m ($1.135bn) in 2008, from OMR453.01m ($1.176bn) a year earlier, according to a research note from Gulf Baader Capital Markets (GBCM) released on Tuesday. 

The data excludes investment holding firms.

A deceleration in growth in the last quarter of the year overshadowed strong corporate performance by firms in the first six months, which had led to a peak in stock prices, Sunil Dhall, vice-president of GBCM, said in the note.

“As the bottom fell out of economies worldwide, corporate performance in the Sultanate was hit badly too,” he said.

In addition to the banking sector, a number of leading corporate firms, like Oman Cables Industry and National Aluminium, were also hit in the fourth quarter because of volatility in commodity prices.

“Hedging was a big factor as well, with several other corporate companies losing money as a result,” Dhall said.

Banking sector profitability jumped by 9.9 percent during 2008 from an aggregate oF OMR156.68m ($406.9m) in 2007 to OMR172.25m ($447.4m).

Dhall said profit earnings were projected to be considerably higher but were partly affected by a directive from the Central Bank of Oman requiring commercial banks to route their losses on investments through their profit and loss statement, rather than directly adjust them against their equity.

Banking profits for 2009 were projected to be lower, according to Dhall.

“Trade volumes are coming down, while there’s been hardly any loan growth during January and February this year, so it looks like banks are going to be very cautious this year,” he said.

Corporate profitability of the industry segment slumped by 27.6 percent during 2008, with earnings of cement companies particularly hard hit because of the need to import pricier cement for the domestic demand. 

Earnings were projected to stabilise this year, although the sector would remain under pressure as a result of shrinking exports and lower demand.

The services segment fared better, with only a marginal fall in earnings of around 3.6 percent during 2008.

Across all industries, utility companies, port services, and oil marketing companies would outperform other companies through 2009, he said.

“Cash preservation will be the name of the game this year,” he said. 

“Investors should look to invest in companies that have free cash flow — firms that are generating more cash than they need to invest back in their operations and defensive stocks,” Dhall added.

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