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Emerging Markets will be Key Growth Drivers for DP World

DP World will benefit from increased trade from these markets as they seek to expand their container port facilities, while global port privatisation will create long-term potential for the company, the investment bank said.

Goldman Sachs has initiated coverage of DP World with a ‘buy’ rating and a target price of $0.78.

“We believe the key top-down growth drivers for DP World include the global GDP realignment, and the increase in containerisation levels across emerging market countries,” said DP World analysts Anton Farlenkov and Artyom Golodnov in a recent research note.

Goldman Sachs said that in the first half of 2009, about 75 per cent of gross container throughput of DP World was accounted for by emerging markets.

DP World’s key expansion projects which have already been announced, are within emerging countries. In the next few years, more than 60 per cent of its new container capacity is expected to come from these markets.

“Our economists expect that the world will look completely different in the next 25 to 30 years, with most of GDP growth coming from Brazil, Russia, India and China.”

The investment bank also identified as potential new revenue stream for DP World, the so-called N-11 or the Next Eleven — Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam - countries it believes have the highest potential for economic growth in the 21^st century.

“On top of this, we believe DP World is strategically well placed to benefit from continuing containerisation of general cargo. In developed countries the process of containerisation has been largely completed - but emerging market regions such as, Africa, Middle East, Asia, Latin America, the Commonwealth of Independent States or former Soviet Republics, this process continues.” With expectations of higher volumes in port container operations in these countries, DP World is seen to outperform the global container market. “Overall, we anticipate global container throughput to grow by 7.6 per cent on average in the next five years versus the 10.8 per cent average for DP World.” “In the short-term we expect growth to come from increased throughput at existing terminals. Over the medium-term it should come through expansion of those existing

terminals, and long-term, through the development of new terminals. The acquisition or award of concessions in existing ports could also accelerate growth in the short-term. DP World plans to commission at least 30 million twenty-foot equivalent unit of additional capacity by 2017.”

Another upside for DP World is the growing trend of privatising global port operations and management. Goldman Sachs said global port privatisation levels are high at 80 per cent. However, in Africa, Middle East and South Asia, the share of government-run ports are 55 per cent, 31 per cent, and 33 per cent, respectively. In Western Europe, the share of government-run ports are 7 per cent, and 18 per cent in North America. “The high global privatisation rates suggest that a majority of governments believe privately operated ports are more efficient than those run by local authorities, and governments seek private capital to finance port expansion plans which are very capex-intense. This implies that these regions still have good privatisation potential. We consequently believe that privatisation trends will continue, and given DP World’s strong position in these regions the company will likely benefit,” said Goldman Sachs.

· rocel@khaleejtimes.com