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UBS, Citigroup Cut DP World’s Target Price

UBS maintained its “neutral” rating on DP World but slashed its target price to $0.29 from $0.40. Citigroup also cut its price estimate to $0.50 from $1.10 and rated it a “medium risk/buy.”

“The increasing headwinds suggest share price is likely to underperform in the near term on the prospect of significant consensus downgrades, worsening industry and the likelihood that the company will revise 2009 guidance downward,” said UBS.

Citigroup said DP World will report volume data for 2008 on January 26 against a backdrop of plunging container volumes at many of the largest global container terminals, rapidly deteriorating economic growth and an unfavourable trade outlook.

“We expect 2009 and 2010 to be tough,” said Citigroup, citing that in December, leading terminals saw volumes crumble with Singapore volume down by 13.1 per cent; Hong Kong by 24 per cent; Shanghai by 6 per cent and Shenzen by 16 per cent. Volumes in major US ports dropped for the 17th consecutive month by an average of 6.4 per cent. “Global volume trends suggest DP World will be extremely cautious in its outlook statement.”

Citigroup also cut DP World’s earnings per share (EPS) by 36 per cent in 2009 to $2.3 and by a bigger 43 per cent to $2.85 in 2010. Earnings before interest, taxes, depreciation and amortisation (EBITDA) was also cut by 14 per cent in 2009 to $1.306 billion and by 21 per cent in 2010 to $1.435 billion to reflect lower revenue growth.

UBS trimmed its EPS forecasts by 25 per cent for both 2009 and 2010.

Amid anticipated weakening consumer demand, UBS has reduced its volume forecasts for the consolidated ports in each of DP World’s three regions – Middle East, Europe and Africa.

It said throughput growth in the Southampton port will decline by 10 per cent; Jeddah-10 per cent; Constanta- 20 per cent; Antwerp-10 per cent and Dubai- 21 per cent.

“The most important swing factor for the performance of the Middle East, Europe and Africa will be Dubai, which we estimate accounts for 65 per cent of DP World’s consolidated throughput and provides a significantly greater proportion of profitability given that DP World earns higher margins at Dubai, pays zero tax and has no minorities.”

UBS said consolidated throughput in the Asia Pacific and Indian subcontinent will decline by 6 per cent in 2009, and by 5 per cent in Australia and Americas.

Volatile oil prices also prompted UBS to forecast a 5 per cent decline in transhipment cargo based on its forecast that the average Brent oil price will go down 39 per cent to $60 a barrel this year from $98.52 in 2008.

“This makes intuitive sense given that the oil price is the most important driver of the purchasing power of major Dubai transshipment customers such as Iran, Iraq, Libya, Saudi Arabia and Kuwait.”

DP World is one of the world’s four largest container terminal operators in terms of both capacity and throughput. It operates 44 container terminals in 24 countries and plans to expand its portfolio to 53 terminals in the next 3-4 years.

rocel@khaleejtimes.com