Gulf Bank has performed magnificently well in 2010, adding 97% to its’ price. It has by far exceeded the returns of both the KSE Price index and the banking index. Moreover it has surpassed all its peers.
Today Al Qabas listed some reasons that justify this rally:
1) Although the bank suffered from a massive erosion in book value, it maintained its market share within the banking arena in Kuwait and continued to compete with them.
2) Huge growth in the bank’s earnings as Q1 they recorded a profit of KD 524 thousand, Q2 they recorded a profit of KD1.4 million and in Q3 they announced a profit of 8.9 million.
3) The bank is tightly held from its shareholders as they hold 56.7% cumulatively.
4) Shareholders who suffered from the bank’s losses and had to recapitalize the bank were also buying the stock to average down their losses.
5) The presence of the KIA
6) The change in strategy and management and the enforcement of corporate governance. In addition, the cleaning of the balance sheet helped in restoring investor’s confidence.
7) The old shareholders are confident in the bank and they maintained their ownerships.
Looking at the basic relative valuation, one might assume that the stock might be overbought as it is now trading above peers with the exception of Boubyan bank. However, the bank has taken considerable provisions although they have just cleaned up their balance sheet. The bank might still be conservative and not reverse the provisions in the next few quarters, however I do believe that it has some hidden value into it.
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