the investment dar equity research update
• Global values Investment Dar stock at KD1.402 and recommends a BUY on the stock
Global Investment House – Kuwait- The Investment Dar Equity Research Update - The total revenue of The Investment Dar (TID) for the year 2006 was KD162.6mn, which was driven by gain on partial disposal of subsidiaries and real estate revenues. The business model of the company is undergone a major change as it has moved from an investment company to holding company structure with most of the businesses conducted through subsidiaries and associates rather than by TID itself. Income from subsidiaries and associates has become one of the important sources of revenue as it continues to establish new companies and exit at attractive valuation to add value to its shareholders.
Keeping in line with the improved performance of TID and our expectations about its future potential, we have valued TID’s share price at 1,402fils. The stock currently trades at around 1,200fils, which implies that the value arrived is around 16.9% higher than the current market price. We see room for appreciation and expect the stock to appreciate from its current levels in the short to medium term. Hence, we upgrade our recommendation from HOLD to BUY.
Financial Performance
The total revenue has grown to reach KD162.6mn in 2006 compared to KD120.8mn in 2005, an increase of 34.6%. The revenue of TID grew at a CAGR of 69% over the period 2003-06 as the company increased its areas of operation and gained market share. The company also undertook expansion in other countries which added significantly to the top-line growth. The growth in 2006 was driven by gain on partial disposal of subsidiaries and real estate revenues. The gain on disposal of subsidiaries went up by a whopping 288.3% in 2006. This was mainly due to the gain of KD24.1mn from distribution some of the group’s right in its subsidiary Al-Madar Finance Co. in 2006. Land and real estate revenues were up by 52.5% in 2006.
The revenue from real estate is still the largest contributor to the overall revenues. Income from land and real estate surged by 52.5% to reach KD58.7mn during 2006 as compared to KD38.5mn reported in the previous year. The strong growth in the land and real estate revenues can be attributed to gain on sale of land and real estate under development which increased from KD13.5mn in 2005 to reach KD46.9mn in 2006. However its share in total revenues has come down from 49.3% in 2004 to 36.1% in 2006. This is due to increase in revenues from subsidiaries and associates.
TID reported 14.3% growth in its net profit as it reached KD92.0mn in 2006 as compared to KD80.5mn recorded in the previous year. The growth in profitability has been lower than that of revenues on account of a 128.9% jump in the finance costs. The company has raised significant amount of the financing through Murabaha and Wakala contracts to fund its business growth.
The total assets of the company crossed the KD1-billion mark in 2006 as it reached KD1.06bn in 2006. The assets grew at a CAGR of 57.7% over the period 2003-06. The assets recorded a strong YoY growth of 58.4% in 2006. The company has been changing its asset structure by diversifying and concentrating on the major sectors including consumer credit, investment and real estate. This reflects the changing business model of the company.
The contribution of receivable portfolio (which includes finance and other receivables) to the total assets of the company has come down from 62.1% in 2004 to 23.8% in 2006. There has been a significant increase in the investments portfolio of the company. The share of this segment in the total assets has gone up to 39.3%, up from 12.9% in 2004. With the strategy of the company to increase business through subsidiaries and associates, the share of investments in subsidiaries and associates in total assets has gone up to 13.1% in 2006 from almost negligible level in 2004.
The company’s shareholders’ equity reached KD309.1mn at the end of 2006 as compared to KD177mn reported in 2005, an increase of 74.6%. The total shareholders’ equity exceeded US$1bn. The company’s share capital reached KD71mn in 2006, up from KD50.7mn in 2005 by issuing 20% bonus share. For the year 2006, the company declared 50% cash dividends and 7.5% bonus shares for the shareholders.
TID has continued to grow strongly in 2007. The revenues during the 1Q-2007 witnessed an increase of 37.6% to KD60.1mn as compared to KD43.7mn during the same period in the previous year. The growth was mainly driven by group’s share of profits of associates, which nullified the impact of decline in the investment income. Group’s share of profits of associates increased 66-fold to reach KD36.4mn in 1Q-2007. Most of this income was on account of revaluation of investment properties of Al-Bilad Real Estate Company, an associate company. TID posted a net profit of KD40.7mn in 1Q-2007 as compared to KD28.5mn in the same period in the previous year, reporting an increase of 42.7%.
Looking at the revenue model, no single activity dominates revenue structure of TID which is getting more diversified and we expect this trend to continue in the medium-term. Also, if any particular sector is not performing well in future, TID will not be severely impacted by the downturn as it has a diversified revenue stream ranging from real estate, banking, insurance, logistics, investments and consumer finance. The company is also betting on geographical expansion in order to boost its revenues and diversify the portfolio.
Overall we are of the opinion that Investment Dar is well-placed to continue to its growth story. Investment Dar has been very successful in identifying the right investment opportunity. The company’s strategy of setting up new businesses through holding structure and exiting at the right time will continue to pay rich dividends. The geographic expansion of the company will help to diversify its portfolio.
