Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Emirates NBD Bank PJSC / Equity Bottom-Up

Full-Shariah <a href="https://www.smartkarma.com/entities/28103" target="_blank" data-smartkarma-citation="entities:28103:1">Emirates Islamic Bank PJSC (EIB UH)</a> may barely trade but it is priced as one of the most expensive banks in the world. And it's no minnow with a Market Capitalisation of US$14.8bn. (The biggest bank in the middle east by this measure stands at US$46bn). Shares are priced at a valuation which accounts for 88% of the Market Capitalisation of parent <a href="https://www.smartkarma.com/entities/27001" target="_blank" data-smartkarma-citation="entities:27001:1">Emirates NBD PJSC (EMIRATES UH)</a>, the third largest GCC bank, despite representing about 11% of its parents' Balance Sheet and Net Profit. This actually says a fair bit about how expensive MENA banks are.Maybe, investors view EIB as "safe as houses" (it is for example well capitalised, the government of Dubai is the majority owner via its parent, and it is free of Riba and Gharar) but there is valuation risk for EMIRATES UH. Given the astronomical valuation of the subsidiary, by any measure, one would expect a mega ROE and maybe pristine Asset Quality. ROE is high (well better than most in the region) but no higher than say some LATAM and African lenders at lower and in many cases relatively expensive valuations. NPL ratio is though much higher than the regional median: subpar Asset Quality also does not justify the valuation. Trends in Liquidity and Efficiency are also moving in the wrong direction: our value-quality PH Score (which forms the fundamental component of VFM) is well below the regional and global median.The subsidiary of EMIRATES UH inhabits our bottom decile of banks globally according to our VFM rankings. (That's Valuation, Fundamentals, Momentum). This means, in this case, that valuation is elevated; and fundamental trends are below average. Liquidity in this case means technical indicators are meaningless. As meaningless as the inflated valuation.

Full-Shariah Emirates Islamic Bank PJSC (EIB UH) may barely trade but it is priced as one of the most expensive banks in the world. And it's no minnow with a Market Capitalisation of US$14.8bn. (The biggest bank in the middle east by this measure stands at US$46bn). Shares are priced at a valuation which accounts for 88% of the Market Capitalisation of parent Emirates NBD PJSC (EMIRATES UH), the third largest GCC bank, despite representing about 11% of its parents' Balance Sheet and Net Profit. This actually says a fair bit about how expensive MENA banks are.Maybe, investors view EIB as "safe as houses" (it is for example well capitalised, the government of Dubai is the majority owner via its parent, and it is free of Riba and Gharar) but there is valuation risk for EMIRATES UH. Given the astronomical valuation of the subsidiary, by any measure, one would expect a mega ROE and maybe pristine Asset Quality. ROE is high (well better than most in the region) but no higher than say some LATAM and African lenders at lower and in many cases relatively expensive valuations. NPL ratio is though much higher than the regional median: subpar Asset Quality also does not justify the valuation. Trends in Liquidity and Efficiency are also moving in the wrong direction: our value-quality PH Score (which forms the fundamental component of VFM) is well below the regional and global median.The subsidiary of EMIRATES UH inhabits our bottom decile of banks globally according to our VFM rankings. (That's Valuation, Fundamentals, Momentum). This means, in this case, that valuation is elevated; and fundamental trends are below average. Liquidity in this case means technical indicators are meaningless. As meaningless as the inflated valuation.

Emirates NBD: A Most Expensive Subsidiary