TIDMQIF
RNS Number : 7610K
Qatar Investment Fund PLC
21 April 2015
21 April 2015
Qatar Investment Fund plc ("QIF" or the "Company")
Q1 2015 Investment Report
Qatar Investment Fund plc (LSE: QIF), today issues its Q1 2015
Investment Report for the period 1 January 2015 to 31 March 2015, a
pdf copy of which can be obtained from QIF's website at:
www.qatarinvestmentfund.com.
QIF was established to capitalize on the investment
opportunities in Qatar and the Gulf Cooperation Council ("GCC")
region, arising from the economic growth being experienced in the
area. The Company invests in quoted Qatari equities listed on the
Qatar Exchange ("QE") in addition to companies soon to be listed,
with a possible allocation of up to 15% in other listed companies
elsewhere in the GCC region. The Investment Adviser invests using a
top-down screening process combined with fundamental industry and
company analysis.
QIF Q1 Quarterly Report
3 months ended 31 March 2015
Highlights
Ø Qatar Investment Fund Plc's ("QIF") net asset value (NAV) per
share, net of dividends paid, was flat (-0.6%) during the quarter
ended March 2015, whilst the Qatar Exchange Index was down
4.7%.
Ø Qatari population rose 5.0% in the quarter.
Ø Government's budget to end 2015 has made maximum allocation to
major development projects.
Ø Private sector credit growth remains good (up 6.2%) between
December 2014 and March 2015.
Ø US$200 billion allocated to infrastructure related projects in
next seven years; new projects worth US$30 billion slated for
2015.
Ø Profits of listed Qatari companies rose 8.9% in 2014.
Ø Qatar market trades on 2015E PE of 12.6x, less demanding than
Saudi Arabia (17.5x), UAE (12.7x) and the overall MENA region
(15.0x). Qatar's estimated dividend yield is 5.1% for 2015.
Ø Qatar GDP expected to grow 7% in 2015.
Performance and Portfolio Structure
Embedded image removed - please refer to the IMS on the
Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting the NAV per share compared to the QIF share
price.
As at the end of March 2015, the QIF share price was at a 17.2%
discount to NAV per share.
Historic Performance against the QE Index
Performance 2007 2008 2009 2010 2011 2012 2013 2014 2015
5M 3M
-------------- ------ ------- ------ ------ ------ ------ ------ ------ ------
QIF NAV* 13.9% -36.4% 10.4% 29.9% 1.3% -4.7% 24.2% 20.6% -0.6%
-------------- ------ ------- ------ ------ ------ ------ ------ ------ ------
QE Index 27.0% -28.8% 1.1% 24.8% 1.1% -4.8% 24.2% 18.4% -4.7%
-------------- ------ ------- ------ ------ ------ ------ ------ ------ ------
QIF Share
Price 15.5% -67.5% 97.3% 23.0% -2.3% 2.4% 26.4% 17.4% -8.5%
-------------- ------ ------- ------ ------ ------ ------ ------ ------ ------
* NAV is net of dividends paid
Source: Bloomberg, Qatar Insurance Company
Portfolio Structure
Top 10 Holdings
Company Name Sector % Share
of NAV
-------------------- ------------------- --------
Qatar National Banks & Financial
Bank Services 15.8%
-------------------- ------------------- --------
Commercial Bank Banks & Financial
of Qatar Services 9.3%
-------------------- ------------------- --------
Qatar Islamic Banks & Financial
Bank Services 7.6%
-------------------- ------------------- --------
Banks & Financial
Masraf Al Rayan Services 7.4%
-------------------- ------------------- --------
Gulf International
Services Industry 6.4%
-------------------- ------------------- --------
Qatar Insurance
Co Insurance 6.3%
-------------------- ------------------- --------
Banks & Financial
Doha Bank Services 5.6%
-------------------- ------------------- --------
Qatar Electricity
& Water Co Industry 5.3%
-------------------- ------------------- --------
Barwa Real Estate Real Estate 5.2%
-------------------- ------------------- --------
Qatar Navigation Transportation 4.5%
-------------------- ------------------- --------
Qatar Electricity & Water Co and Qatar Navigation replaced
Industries Qatar and Ooredoo in QIF's top 10 holdings. The
Investment Adviser continues to reduce exposure to hydrocarbon
sector linked companies and has been increasing exposure to
companies linked to non-hydrocarbon economic growth.
Country Allocation
At quarter end QIF had 23 holdings: 21 in Qatar and 2 in UAE (Q4
2014: 25 holdings: 21 in Qatar, 3 in UAE and 1 in Oman). Cash was
7.4% of NAV (Q4 2014: 1.2%).
Qatar remains the preferred market for the Investment Adviser in
the GCC region because of its stable politics, sizeable hydrocarbon
reserves, growth prospects in the non-hydrocarbon sector,
infrastructure development, high dividend yield and attractive
valuation.
Sector Allocation
Embedded image removed - please refer to the IMS on the
Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting the overall portfolio allocation by sector as at 31
March 2015.
QIF remains overweight in the banking sector, with a weighting
(including financial services) of 50.8% (Q4 2014: 52.0%) vs. 40.5%
for the Qatar Exchange (QE) Index. The Investment Adviser favours
the Qatari banking sector because of the government's
infrastructure development plans, which should fuel lending growth.
Qatari banks will also benefit from a rising domestic population
and from international expansion. Qatar National Bank remains QIF's
largest holding (15.8%).
The second largest exposure is to the industrial sector at 15.2%
(Q4 2014: 16.8%). This is underweight relative to the QE Index
(24.3% weight in the QE Index) due to oil price volatility
hindering the prospects of hydrocarbon linked industrial companies.
Exposure to Gulf International Services increased from 5.3% to 6.4%
during the quarter.
QIF's real estate weighting was reduced to 8.8% from 10.3% in
the previous quarter, as exposure to Barwa Real Estate lowered to
5.2% from 6.2%. Similarly, the exposure to Telecoms (single holding
- Ooredoo) reduced from 6.3% to 3.7%, on the back of a challenging
environment in some of the operating countries and emerging market
FX depreciation.
Regional Market Overview
Most GCC markets were subdued in Q1 2015, except Saudi which
gained 5.3% having fallen 23% in Q4 2014.
The Qatari market's decline of 4.7% in the quarter arose from
falling oil prices, weaker earnings estimates, regional
geopolitical tensions and stocks going ex-dividend. Sector-wise,
real estate was the top performer with a 6.7% gain, followed by the
insurance sector with a 5.7% rise. Telecom was the worst performer
falling 10.7%.
The Qatari market outperformed its major GCC peers such as Saudi
and Dubai. Between 31 July 2007 (since QIF's launch) and 31 March
2015, the QE Index has gained 53.7% and has been among the top 10
performing country indices in the world. The factors behind this
performance include lower reliance on oil prices, long term gas
contracts and robust infrastructure spending.
Since oil prices started to fall in H2 2014 Qatar has
outperformed the Saudi and Dubai markets. In the past 9 months
(from 30 June 2014 to 31 March 2015), the Qatari market gained 1.9%
compared to declines of 7.7% and 42.1% respectively for Saudi and
Dubai.
The Investment Adviser believes that the Qatari market should
continue to perform better than other GCC markets because of its
strong fundamentals, infrastructure spending (and visibility on
projects being completed on time), non-hydrocarbon sector growth
and rising population. According to a Deutsche Bank Report, Qatar
is trading on a 2015E PE of 12.6x, less demanding than other GCC
markets such as Saudi Arabia (17.5x), UAE (12.7x) and the MENA
region (15.0x). Qatar is further supported by its high dividend
yield (2015E dividend yield: 5.1%).
Qatar's infrastructure spending to continue despite possibility
of running into fiscal deficit
Qatar's long term growth story remains intact, driven by growth
in the non-hydrocarbon sector supported by a healthy infrastructure
pipeline. Moreover, investors see more visibility of projects being
completed on time. The Investment Adviser believes that this view
is further strengthened by the recent interim budget announcement
by the government, which focuses on mega development projects and
investments linked to the 2022 FIFA World Cup. A large chunk of
total expenditure is allocated to major development projects in the
interim budget.
Qatar's Prime Minister stated that over US$200 billion of
spending is planned over the next seven years, underscoring
economic diversification despite lower oil prices. The focus is on
sectors such as health, education and infrastructure. According to
MEED, Qatar should see new infrastructure projects worth US$30
billion in 2015 alone.
The Investment Adviser expects that lower oil prices should have
minimal impact on Qatar, although there will be some strain on
hydrocarbon exports and government revenues.
According to Barclays research, most of the GCC economies,
except Kuwait, are expected to have fiscal deficits in the coming
year if crude oil prices remain at low levels. If this happens GCC
countries will draw on their existing reserves, sovereign wealth
buffers, or may issue debt to fund fiscal deficits. Qatar is
expected to run a smaller deficit than Saudi Arabia and Oman.
The IMF expects low oil prices will mean Qatar will have a
budget deficit from 2016. Current account surpluses are also
expected to shrink from over 32% of GDP in 2012 to 2% of GDP in
2020. This should intensify efforts to diversify the economy and
should encourage fiscal consolidation in the medium term. In the
coming year, GDP growth is expected to be around 7%, driven by
implementation of the public investment program and as the Barzan
natural gas field starts production.
Embedded image removed - please refer to the IMS on the
Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting Qatar Current Account Balance
The Investment Adviser believes that despite falling oil prices,
the Qatari government has sufficient resources to finance its
ongoing infrastructure spending. Hence, the Investment Adviser
remains positive on the Qatari economy which is underpinned by
continued efforts by the government to diversify the economy and
thus reduce its reliance on the hydrocarbon sector.
Qatar: corporate profits increased 8.9% in 12M 2014
The profitability of Qatari listed companies rose in 2014, up
8.9% on 2013. In Q4 2014, corporate profits increased 9.1% on Q4
2013, mainly driven by the real estate, banking and transportation
sectors.
Sector profitability (net profit/loss in US$000s)
12M
Sectors 12M 2013 2014 % Change Q4 2013 Q4 2014 % Change
--------------------- ----------- ----------- --------- ---------- ---------- ---------
Banking & Financial 4,773,653 5,339,092 11.8% 1,150,679 1,266,682 10.1%
--------------------- ----------- ----------- --------- ---------- ---------- ---------
Insurance 848,173 589,737 -30.5% 458,496 280,372 -38.8%
--------------------- ----------- ----------- --------- ---------- ---------- ---------
Industrial 3,415,109 3,568,467 4.5% 933,309 999,338 7.1%
--------------------- ----------- ----------- --------- ---------- ---------- ---------
Services &
Consumer Goods 468,248 512,126 9.4% 127,758 137,355 7.5%
--------------------- ----------- ----------- --------- ---------- ---------- ---------
Real Estate 797,539 1,355,225 69.9% 330,896 713,635 115.7%
--------------------- ----------- ----------- --------- ---------- ---------- ---------
Telecoms* 708,422 586,355 -17.2% 140,110 15,205 -89.1%
--------------------- ----------- ----------- --------- ---------- ---------- ---------
Transportation 489,133 572,267 17.0% 103,064 128,520 24.7%
--------------------- ----------- ----------- --------- ---------- ---------- ---------
Total 11,500,276 12,523,270 8.9% 3,244,313 3,541,105 9.1%
--------------------- ----------- ----------- --------- ---------- ---------- ---------
* Excluding Vodafone Qatar because of 31 March year end
Source: Qatar Exchange
Banking and financial services sector profits rose 11.8% in
2014, with the banking sector being the main contributor. Qatar
banking sector profits grew 11.7% in 2014, driven by strong growth
in lending, particularly to the private sector (up 21.9% in 2014).
A recent report by the Boston Consulting Group (BCG) stated that
retail banking revenue growth in Qatar (up 12.5% in 2014) beat the
GCC average of 7.9% in 2014. The largest bank, Qatar National Bank,
posted a profit growth of 10.3% in 2014, while Qatar Islamic Bank
reported the highest growth of 19.9% in net profit. Masraf Al Rayan
and Commercial Bank of Qatar profits rose 17%. Most of the listed
Qatari banks reported double-digit rate of growth. Financial
services sector profits increased 31.2%, driven by substantial rise
net profit at Dlala Brokerage, further supported by profit rises
from Qatar Oman Investment Company and Islamic Holding Group.
However, the net income of National Leasing Company experienced a
sharp decline in 2014 (down 47.2%).
The net profit of the industrial sector grew 4.5% in 2014. The
sector now contributes 28.5% of total net profits of all listed
Qatari companies. Sector heavyweight and one of the largest
chemical producers in the GCC region, Industries Qatar, saw a 21%
profit fall as a result of shutdown programs, coupled with lower
product prices and increased operating costs. Qatar Electricity and
Water and Gulf International Services reported robust increase in
profits. Gulf International Services' profits rose sharply on
account of the buy-out of the remaining 30% stake by the company in
its drilling segment JV in April 2014.
Insurance sector profit declined 30.5% in 2014, as net profit of
Qatar General Insurance and Reinsurance Company declined by over
56%, mainly due to a one-off fair value gain of QAR2 billion
reported by the company in 2013 compared to a much lower fair value
gain of QAR724.3 million in 2014. Qatar Insurance Company profits
rose 33.1% in 2014.
In 2014, profits in the services & consumer goods sector
grew 9.4%. The largest profit contributor was Qatar Fuel Company,
which posted a marginal rise of 0.9% in profit. Al Meera Consumer
Goods reported a 15.5% growth in profit.
Real estate sector profits grew 69.9% in 2014. Profit of Barwa
Real Estate Group doubled. Ezdan Holdings reported a 27% profit
rise. Other major players in the sector, United Development Company
and Mazaya Qatar also reported double digit growth in profits.
The telecom sector comprises Vodafone Qatar and Ooredoo.
Vodafone Qatar is excluded from this profit comparison, since its
fiscal year ends on 31 March. Ooredoo (formerly Qatar Telecom),
reported a 17.2% fall in profit in 2014.
Transportation sector profits climbed 17.0% in 2014, with Gulf
Warehousing Company and Qatar Gas Transport Company posting
earnings growth of 38% and 22.6%, respectively. The largest profit
contributor of the sector, Qatar Navigation, reported a 10.5% rise
in its 2014 net profits.
Recent Developments
FIFA related projects get priority in the extended state budget
for 2015
Recently, Qatar announced its state budget for the extended
period of nine months starting from 1 April to 31 December 2015.
The country will be following a new January to December fiscal year
from 2016, which required extending the current FY 2014-15 budget
to December 2015. Qatar's extended budget also focuses on mega
development projects and investments linked to the 2022 FIFA World
Cup. The government is committed to continue with its development
program, despite falling energy prices in the global markets. The
extended budget assumes an oil price of US$65 per barrel; unchanged
from the FY 2014-15 budgets. Revenue from extended budget is
estimated at QAR169.3 billion, while the expenditure has been
estimated at QAR163.8 billion, translating into an estimated budget
surplus of QAR5.5 billion. Most of the expenditure would be in the
health, education, infrastructure and transport sectors and
projects related to the 2022 FIFA World Cup.
According to the Qatari Ministry of Finance, estimated revenue
during the full 21 months period (1 April 2014 to 31 December 2015)
is expected to reach QAR395.0 billion and total expenditure during
the same period would be QAR382.2 billion, resulting in an
estimated surplus of QAR12.8 billion. The Minister of Finance
stated that preliminary estimates of the budget for FY 2014-15 (1
April 2014 to 31 March 2015) show a surplus of about QAR137
billion.
In the extended budget, allocation to major projects would be at
the maximum of QAR65.6 billion, thus bringing the total allocation
during 21 months for this sector to QAR153.1 billion. The state
budget has kept aside QAR53.4 billion for current expenditure,
increasing total allocation to this sector to QAR124.5 billion in
the full 21 months. Total allocation to salaries and wages is
expected at QAR35.6 billion in the nine months, thus taking the
total allocation to QAR83.1 billion.
Private sector credit growth remained strong
According to Qatar Central Bank (QCB) data, credit growth in
Qatar remained strong year to date. Total credit extended by Qatari
banks increased 3.5% between December 2014 and March 2015. Public
sector credit declined 1.3% during the period, while private sector
reported a strong 6.2% rise in credit.
Credit growth in Qatar rebounded from February 2015. The overall
credit increased by 1.7% MoM in February 2015 and 3.2% MoM in March
2015 after posting a decline of 1.4% MoM in January 2015. Public
sector credit grew 1.5% MoM in February 2015 and 4.5% MoM in March
2015 vs. a 6.9% MoM decline reported in January 2015. Private
sector credit growth remained stable at 1.8% MoM in both January
and February 2015 and growth accelerated to 2.4% MoM in March 2015.
Total deposits grew 3.3% year to date. The banking sector's
loans-to-deposit ratio (LDR) stood at 109% at end of March 2015,
same as at the end of December 2014.
Going forward, the Investment Adviser expects credit growth to
remain strong on the back of infrastructure spending before the
2022 FIFA World Cup, double digit growth in the non-hydrocarbon
sector and the expanding population.
Changes in QE Index constituents and weights
Following the semi-annual review of the QE indices, from 1 April
2015, Aamal will replace Medicare in the QE Index, with a weight of
2.76%, while all 43 listed companies will remain part of the QE All
Share Index (& related sector index).
The Qatar Exchange caps the maximum weight a single stock can
represent at 15% of the QE Index. Based on 31 March 2015 closing
prices, Qatar National Bank, whose weight was exceeding 15% has
been capped at 15% and excess weight has been distributed
proportionately amongst remaining stocks.
Trading of entitlements to rights issues
The Qatar Exchange (QE) has been planning to introduce trading
of rights issue entitlements for investors. Currently, investors
need to commit additional money to exercise rights, or
alternatively receive no compensation if they do not take up their
rights to subscribe for shares in rights issues. These rights are
generally at a fixed price but may be lower than the market price.
However, according to the Qatar Exchange, if these rights
entitlements are tradable, investors can sell them and receive a
benefit if they choose not to subscribe in the rights issue. The
Qatar Exchange also stated that it is currently working with Qatar
Financial Markets Authority (QFMA), on forming the mechanism for
selling and pricing of rights issue entitlements as a new
instrument in the capital market. As a result, the rights holder
can either exercise the rights by subscribing in the company's
capital increase or can sell the rights fully/ partially.
Macroeconomic Update
The Qatari economy continued to grow in Q4 2014, with real GDP
rising 6.7% compared to Q4 2013, the fastest in the last four
quarters, according to Ministry of Development Planning and
Statistics (MDP&S). The growth was mainly driven by double
digit growth in electricity, construction, trade, hotels, transport
& communication and domestic services. This was also supported
by healthy population growth in Q4 2014. The hydrocarbon sector
reported a growth of 1.3% in Q4 2014 compared to Q4 2013, while
non-hydrocarbon sector growth was 10.3% during the same period.
This confirms that the Qatar economy is diversifying away from the
hydrocarbon sector.
In 2014, Qatar's real GDP grew 6.2% compared to 2013, on the
back of strong 11.5% growth reported by the non-hydrocarbon sector,
which partially offset contraction in the hydrocarbon sector (down
1.5%). The main contributors to growth in the non-hydrocarbon
sector include construction (+18.0%); finance, insurance, real
estate and business services (+13.6%); and trade, hotels and
restaurants (+14.1%). Construction sector growth was mainly driven
by the implementation of major infrastructure projects, such as the
development of Lusail, Barwa City and Education City, while
services sector growth was on account of rapid population
growth.
Looking ahead, Qatar's economic growth is expected to be 7% in
2015 and 7.5% in 2016 according to QNB estimates. Again, the
non-hydrocarbon sector (with growth over 10%) would be the main
contributor to the country's GDP growth. Additionally, the
hydrocarbon sector is anticipated to show some improvement in the
medium term with expected growth of 0.8% in 2015 and 1.8% in 2016.
This incremental growth would be largely contributed by the
increased gas production due to the Barzan gas project, which is
expected to start in the second half of 2015. Economic
diversification efforts towards the non-hydrocarbon sector would
continue in the coming years with share of non-hydrocarbon sector
in the nominal GDP expected to rise to 68.5% in 2017.
Qatar's population grew 5.0% between December 2014 and March
2015, to reach 2.35 million. Population growth is expected to
remain strong as large government spending should continue to
attract expatriate workers.
Valuations
Market Market PE (x) PB (x) Dividend
Cap. Yield (%)
-------------- ---------- -------------- ------- -----------
US$ Mn 2015E 2016E 2015E 2015E
-------------- ---------- ------ ------ ------- -----------
Saudi Arabia 523,200 17.5 14.1 2.8 3.7
-------------- ---------- ------ ------ ------- -----------
UAE 190,196 12.7 11.4 1.9 4.6
-------------- ---------- ------ ------ ------- -----------
Qatar 140,614 12.6 11.6 2.5 5.1
-------------- ---------- ------ ------ ------- -----------
Kuwait 97,694 12.3 10.9 1.7 4.4
-------------- ---------- ------ ------ ------- -----------
Oman 17,277 10.4 10.4 1.7 5.5
-------------- ---------- ------ ------ ------- -----------
Bahrain 22,642 9.2 8.9 1.3 5.9
-------------- ---------- ------ ------ ------- -----------
Egypt 28,857 16.7 10.7 2.6 3.1
-------------- ---------- ------ ------ ------- -----------
Jordan 21,633 11.8 9.8 1.3 4.6
-------------- ---------- ------ ------ ------- -----------
Overall
MENA 1,042,112 15.0 12.6 2.4 4.2
-------------- ---------- ------ ------ ------- -----------
Source: Bloomberg Finance LP, Deutsche Bank, Prices as of 30th
March 2015
Outlook
Qatar's economy is growing well with much of this growth coming
from the non-hydrocarbon sector.
Rising population, helped by an influx of expatriates, should
drive domestic consumption, benefiting companies in the consumer,
transportation, communication and banking sectors.
The infrastructure pipeline, backed by firm political support to
continue with infrastructure development, despite falling energy
prices, should underpin economic progress. This should reassure
investors about Qatar's medium to long-term growth prospects.
Moreover, strong fiscal balances, low inflation levels and high
current account surpluses provide further economic impetus.
As a result, the Qatari market is expected to remain attractive
to investors, particularly given its high dividend yield and
attractive valuation.
For further information:
Qatar Investment Fund plc - +44 (0) 1624 622 851
Nick Wilson
Panmure Gordon - +44 (0) 20 7886 2500
Andrew Potts
Maitland - +44 (0) 20 7379 5151
William Clutterbuck
Robbie Hynes
This information is provided by RNS
The company news service from the London Stock Exchange
END
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