Annuity business, expansion to drive Shuaa's revenues

DUBAI - Shuaa Capital, the UAE-based financial services firm, is expected to perform strongly over coming months, with the annuity business and regional expansion driving future value, according to a note by HSBC Global Research. It anticipates that its brokerage business followed by asset management and private equity will be important revenue generators.

By Lucia Dore (Assistant Editor, Business)

Published: Tue 11 Mar 2008, 8:39 AM

Last updated: Sun 5 Apr 2015, 1:18 PM

The note says that given Shuaa's expansion in buoyant regional markets, the company is projected to generate a CAGR of 44 per cent in fee revenues (against principal investment revenue at 20 per cent) from 2006-2012e. Fee business is expected to contribute 58 per cent of revenue in 2012e, versus 30 per cent in 2006, HSBC says.

Shuaa is also expected to benefit from foreign inflows to the UAE market as well as from its local retail base. However, its market share will increase only slightly to 5.5 per cent by 2012e but on higher volume. (Its market share was estimated to be 4.5 per cent in 2007). This is expected to happen despite increasing competition. The region's buoyant IPO market is expected to support the company's brokerage business and increase its client base.

The contribution of Saudi Arabia to the brokerage business is described as a "helpful addition". The market share will remain low, however, at 1.5 per cent by end-2012e. The most benefit will be derived from its Saudi asset management and corporate advisory operations. HSBC writes: "Saudi Arabia is a major opportunity for the company as is Qatar, through one of its associates."

Earlier in the year, Shuaa bought a 20 per cent stake in Orion Holding, a Dubai-based financial services firm, for $52.5 million. Orion has five subsidiaries - in Kuwait, Jordan, Egypt, Syria and Turkey - and the closure of the deal pending regulatory approval. For this reason, it has not been included in the analysis, HSBC explains.

In respect to asset management, Shuaa is expected to increase its market share in the Middle East from 1.2 per cent currently to 1.8 per cent in 2012, with the value of assets under management (AUM) rising to $8 billion. For the region as a whole, the AUM is forecast to exceed $300 billion by 2012e, and the penetration rate (AUM/market cap) is estimated to rise from 6 per cent currently to 11 per cent in 2012. However, this is still below averages of 16 per cent for emerging and 60 per cent for developed markets, according to the note.

HSBC also predicts that private equity investment is poised for substantial growth, "mainly spurred by petrodollar liquidity, surplus wealth and privatisation efforts". According to the Gulf Venture Capital Association, GCC countries raised private equity worth $10 billion in 2006, compared with $5.75 billion in 2005, a 75 per cent increase year-on-year. It is also estimated that funds managed by regional private equity firms reached $18 billion in 2006 and forecast that they would reach $25 billion by 2007e, representing year-on-year growth of 47 per cent.

Shuaa Capital has paid-up capital of Dh550 million. In terms of shareholder structure, the 49 per cent cap for foreign investors has already been reached.

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