This week’s focus goes to DP World (DPW), Dubai’s global ports operator and logistics company, a great example of a company that puts the competitive advantage of being located in Dubai to work for global expansion. With its privileged geographical position in the new centre of gravity of the world’s economic growth, the company is ideally positioned to benefit from the ongoing increase of trade in these regions and the broader emerging markets.
DPW has recently been punished by markets in line with its parent, Dubai World, who holds roughly 80% of the company. The port operator is entirely ring fenced from the other components of the Dubai World Holding group and any investor who does the minimal amount of research should understand that the association with the fundamentals of Dubai World are not entirely justified. Part of the pressure also came from the fear that last year’s decline in global trade would affect DPW’s results.
What we find interesting about DPW is quite obvious. It is known that ports tend to grow at a multiple of their underlying economies and if you consider that DP World’s operates mostly in the ports of the fastest growing economies in the world, it becomes very clear that DP World is probably a great way to play the opportunity of growth in the new economies. In addition, trade volumes in emerging markets are also expected to continue to increase as more consumers from this world will push transport to higher levels going forward and DPW business is all about the things that make transport work.
There is a long list of places where DPW operates. As can be seen on the map, there is a clear skew to emerging markets and the world’s fastest growing economies:
To put DPW’s reach into perspective, it is the world’s 4th largest marine terminal operator. In 2009 it moved around 43 million TEU (Twenty-foot Equivalent Units, the standard to measure volume in the transportation industry), compare that to the TEU of Singapore’s approximate 28mn or the 25mn that Hong Kong and Shanghai each handle per year. DPW handles roughly 9% of global cargo.
DPW has recently reported better than expected results which reflects the solid capabilities of the company’s management team that delivered strong results in a very challenging year in which, for the first time ever, there was a drop global trade volumes.
Some of the achievements worth highlighting are:
- DPW cut fixed costs in 2009 by more than 7% while improving EBITDA in excess of $1billion with margins at 38%.
- Estimated revenue growth is around 11%.
- Utilization rates are around 80% compared to the global industry average of around 55%.
- The net debt/equity ratio is 62.8%, very modest and healthy for a company that is expanding so rapidly.
Despite the global crisis, DPW world has continued to invest in new terminals in Peru, India, Djibouti and Vietnam, adding further to its strongly diversified network.
Shortly, DPW will be seeking a listing on the London Stock Exchange. This will boost investor confidence and further emancipate the company from its parent, the Dubai government, which is eager to raise more cash after its recent problems with its real estate businesses. Apart from a welcome and timely financial transaction for Dubai World, the LSE listing is also to be seen as symbolic as it proves that Middle Eastern companies can grow to become true global players!
With regards to other news in the African and Middle East Markets, there is much to report. Please refer to our weekly updates for further insight into the interesting opportunities that are developing in our markets and our funds.
Some of the main developments:
- The Nigerian market powers on to new highs booted by confidence and the NPL fixer fund, AMCON
- Bold moves in Morocco to further modernize the market
- Dubai is back and has a plan
Our weekly updates can be dowloaded from our website www.silkinvest.com in the Products Updates section.
With kind regards from the Silk Invest team
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