
New IPOs will need to get careful about their price expectations
Ben Graham once said, “Nearly everyone interested in stocks wants to be told by someone else what he thinks the market is going to do.”
The same can be said of the zeitgeist in the UAE, where over three years, the conversation regarding capital markets has moved into the living room and dinner table.
This illustrates that the demand is clearly there. It is the supply that must be filled. In a year that promises to have more headlines dominated by IPOs, the secondary market performance, and the associated valuations that come along with it, there is a sense that – unlike the US and the West – there is a palpable sense of optimism regarding the fate of most companies. And despite the relatively disappointing performance of some of the new entrants.
In fact, even companies like DEWA have perked up in recent weeks on surging demand for new data centres, alongside the rumour mills working overtime for more spinoffs that are likely to be offered to satiate the demand from investors.
In the midst of this ebullience, investors need to monitor valuations closely for signs of froth.
IPOs priced too high?
One pattern that has already emerged is the divergence in performance between some of the privately held companies and those that have been part of the privatization program.
While this will have little impact on the rush of private sector companies rushing to offer their stock, there is a sense that some of them will moderate their pricing somewhat to attract longer-term investors. Especially so as the more traditional sectors such as retail, real estate and food sector companies make their way to the capital markets, even as the hype surrounds new-gen companies.
More private sector players line up
What we have seen in the UAE has been the outperformance of the infrastructure stocks such as ADNOC Drilling, Salik, Parkin, ADNOC Logistics and the like.
This trend is expected to continue. Alongside it will be private sector companies, as those from the aviation sector join others in hotels, software and even advertising. Undoubtedly, not all of them will look for just divestment of capital.
Indeed, as the nature of capital raising changes, we expect many to raise ‘expansion capital’, which will bring a new breed of investors as companies look to attract capital to fund their expansion programs, domestically and regionally.
Unlike in the real estate sector, where the supply pipeline has been taken care of, the capital markets are in search for quality companies to fill out the ecosystem.
Emaar outperforms
This is not to say that there are not capable candidates in the secondary market arena already. (We have already seen Emaar Properties and Emaar Development outperform the real estate indices.)
2025 promises to be a banner year for the banking sector, having a lower valuation than the rest of the market. But there a growing sense that capital is on the hunt for newer companies to turbocharge and participate in the growth of some of the smaller, medium-sized and larger well-managed companies that have as yet stayed on the sidelines.
It’s anybody’s guess when they’ll make their way to the markets, but this much is certain:investors will be more spoilt for choice in 2025.
A chance for lagging stocks
We also know that as investors look for value, typically the worst-performing stocks will tend to start the year on a positive note.
Macro fundamentals like inflation continue to be a concern, which is why dividends will remain front and center on investor minds as cash flow-oriented investments will dominate the market structure.
This year will be dominated by uncertainty in the global spectrum, but UAE policymakers have navigated the landscape with a deft touch.
This trend is expected to continue especially as the pace of overall returns moderates despite the valuation disparities that exist between global and regional markets.
For the individual investor, the theme of valuations should continue to dominate even as conversationally the tip sheet of winners sparks new conversations.
As the investing world tilts towards emerging markets, the UAE and GCC remain poised to be the prime beneficiaries of inward-bound capital.
Source: gulfnews