Dubai Financial Market: Stock Analysis

Subject: Financial Management
Pages: 4
Words: 1084
Reading time:
4 min
Study level: College

Company Background: Size and growth trends

Dubai Financial Market began operating in 2000. It operated as a public joint stock company and it was successful in listing its shares in the DFM itself in 2007. Their initial price was Dh1.03, which was an equivalent of 0.28 dollars, (Oxford Business Group, 2008). The company has heavily depended on commissions from trading activities, revenues from investments and fees from activities like brokerage, mortgages and ownership transfers. There are fifty-seven companies listed in Dubai Financial Market and mostly in the United Arabic Emirates. The company has a total market capital of nearly three hundred and sixty billion dollars (IBP USA, USA International Business Publications, 2007).

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United Arab Emirates has three big stock exchanges and Dubai Financial Market is one of them. Abu Dhabi Securities Exchange (ADX) and the recently incorporated Dubai International Financial Exchange (DIFX), which was established to deal in international stocks, are the other players in the stocks market. The performance of DFM has been very competitive though composed of many difficulties. It has experienced an average growth since it was established in 2000 and with the latest reported increase of five percent, which made its points to go up to 1634.1 from 1556. Its capitalization has also been increasing though it has a reduced amount of transactions.

During April for example, the value of shares traded went down to Dh4.9 billion from Dh5.2 billion in the previous month. This represented a 5.5% decrease due to the decreased volume of transactions. However, the performance of this company has been more than satisfactory and the resent decrease does not warrant a threat. In this sector, such fluctuations are expected and do not predict any future problems. This is due to the generally growing index of the company.

When compared to other stock exchange companies internationally, DFM is said to be one of the best performing in eastern continents and Africa. It has had an appreciating share due to the growing capitalization. The share is also expected to go up as it has exhibited a positively sloping curve of late. These recent behaviors have not been properly explained though the company is said to be enjoying a good profit, which is responsible for the fast increase.

The stock exchange sector is closely monitored by the government, which hinders the entrance of new competitors. This has been the reason why the sector is composed of few players. The regulations guarding the sector are so numerous for new entrants (Sabri, 2008).

Stock and company performance analysis

Methodology

This paper uses the comparable financial statements, price earnings ratio as well as the return on equity to analyze the performance of Dubai Financial Market. These financial statements, cash flows, income statements and balance sheets, are compered with other financial statements of the other players in the market. This enables us to come up with a better conclusion on whether to invest in the company’s stock or not.

Dubai Financial Market is one of the three stock exchange companies in United Arabic Emirates. Its performance has been satisfactory with the ability to maintain a good profit level. Though the profits are seen to be reducing, this can be explained by the dynamism of the sector. This company has been able to stand out in the United Arab Emirates as one of the best performing companies.

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Dubai was even able to report a profit in 2008 a time when the world was in financial crisis. This period saw most stable companies in the world record almost fatal loses while Dubai Financial Market enjoyed a profit of 164.7 million dollars irrespective of the crisis. However, this was a drop since it had recorded 264.6 million dollars in the previous financial year. This company performs best compared to the other competitors in the sector with Abu Dhabi Securities Market (ADSM) following closely and then the Dubai International Financial Exchange (DIFX), which deals with international stocks (IBP USA, USA International Business Publications, 2007).

Dubai Financial Markets performance has also been promoted by the competition, which is organized for the students to participate in trading of stocks. Participants follow on the stock prices in the company’s website by registering an account in the website and winners are selected based on the profits generated from the trading.

This company also has a growing asset base, which has also reciprocated to the appreciatiation of the company’s share value. This could be due to the increasing capitalization and investments. Though it level of transactions have been going down, the company’s performance is good.

The Company seems to be doing very well in the utilities sector where it recently recorded a rise of 26.3% with the investment and financial services sector having 5.9% while the Banking sector went up by 5.8%. Other sectors like Materials sector decreased by almost 10%. This has enabled the company to company remain commanding a good percentage of the market (Sabri, 2008).

It has recorded a return on equity of 1.016 in the last financial year, which gives a possibility of making profits after investing in the companies stock. However, these profits have been decreasing over the years, which give a negative trend for the investor. However, the performance compared to the other players in the market has been good.

The performance this year has been fluctuating with the first two months of the year recording a positive slope and reaching peak in March. The company level of activity reaches it lowest in the month of May and begins to rise. Some of the factors that lead to these drops are the increase in the interest rates that discourages investments and the availability of finances.

Recommendation

The company analysis shows that Dubai Financial Market is a viable investment option. The stocks of the company increase in value and are expected to go up after the company announces its profits. The company makes profits, which mean that with substantial investments one can earn dividends and enjoy returns on the shares bought.

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The company’s return on capital has been more than one, which shows that the company is a viable investment for potential investors. The graph below shows the company’s performance in the last few months that is from January to the end of May.

The analysis has considered the return on equity, and the capital structures of these players in the stock exchange market. This analysis has also seen that the sector has less risk exposure compare to the other investments, which makes it a better investment.

References

IBP USA, USA International Business Publications, (2007). Arab League: League of Arab Business Law Handbook. Bangladesh: Int’l Business Publications.

Oxford Business Group, (2008). The Report: Dubai 2008. Oxford: Oxford Business Group.

Sabri, R. (2008). Financial Markets and Institutions in the Arab economy. New York: Nova Publishers.