Epicure Qatar Equity Opportunities plc
Quarterly Update to Quarter End September 2010
Report to Shareholders
A FORMATTED VERSION OF THIS REPORT IS AVAILABLE FROM THE COMPANY ADMINISTRATOR, GALILEO FUND SERVICES LIMITED, ISLE OF MAN UPON REQUEST. PLEASE CONTACT firstname.lastname@example.org TO REQUEST A COPY.
Epicure Qatar Equity Opportunities plc
Investment Advisers Report - Quarterly Update to Quarter End September 2010
Epicure Qatar Equity Opportunities plc ("the Company" or "EQEO") was established to capitalise on attractive investment opportunities in Qatar and the Gulf Cooperation Council ("GCC") region, resulting from the economic boom being experienced in the area. The Company seeks to invest in quoted Qatari equities listed on the Qatar Exchange (formerly the Doha Securities Market ("DSM") in addition to companies soon to be listed, with a possible allocation of up to 15 per cent in other regional GCC listed companies. The Investment Adviser invests using a top-down screening process along with fundamental industry and company analysis.
Looking at the performance of the region after the quiet summer, signs of economic recovery and cautious optimism emerge. While some other emerging markets showed decent rebounds in the third quarter, the Middle East has yet to catch up as conditions remain challenging and uncertainty prevails in pockets of the region. Overall, however, risk appetite has improved and investor interest in GCC stocks has increased.
After a poor second quarter of 2010 for the GCC regional markets, with equities falling sharply on the back of increasing concerns over the Eurozone crisis, the trend was reversed in the third quarter of 2010 with all regional indices achieving gains. Dubai and Qatar returned double digit growth.
After falling 7.5 per cent in Q2 2010, Qatar Exchange returned 11.5 per cent in Q3. The Qatar Exchange is the best performing GCC market year to date and was the second best performing market in the third quarter of 2010.
From being the worst performing market in the second quarter of 2010, Dubai emerged as the best performing market in the third quarter, returning an impressive 15.2 per cent. Dubai, however, still remains the worst performing market in the GCC on a year to date basis with a negative 6.6 per cent return.
Bahrain and Kuwait returned 6.8 per cent each over the third quarter and Abu Dhabi returned 6.3 per cent, while the Saudi market, the second best performer in the region year to date, returned 4.9 per cent. The Omani market returned 3.5 per cent.
Embedded image removed - please refer to the Company's website www.epicure-qatarequity.comfor a table depicting GCC Equity Market Performance
Source: Reuters, Qatar Insurance Company S.A.Q.
While the Investment Adviser believes that Qatar will continue to demonstrate strong economic growth over the coming quarters, stock market performance will depend on an improvement in both investor sentiment and liquidity. It is anticipated that the forthcoming third quarter 2010 Qatari company results will have a positive impact on the outlook for the bourse.
Qatar: Oil and gas, government services drive strong growth in Q2
Qatar's USD GDP expanded by more than 20 per cent y-o-y in Q2 2010 for the third consecutive quarter. Although the increase was driven primarily by a pronounced price-driven pick-up in the value of oil output, the non-oil sector grew by 8 per cent y-o-y, a particularly strong performance given near zero domestic inflation. The gain in non-oil output included a 16 per cent expansion in manufacturing sector activity but was dominated by a 34 per cent y-o-y increase in the value of government services, underscoring the pivotal role public spending plays in the domestic economy.
The construction sector showed its first q-o-q expansion since 2009, but the value of activity in Q2 2010 remained down more than 10 per cent y-o-y and 20 per cent below its boom-time peak. Financial services also rose q-o-q but remained down y-o-y. Somewhat surprisingly, the value of oil and gas output fell q-o-q despite a strong annual gain - officials commented that this reflected routine maintenance operations.
Going forward, non-oil GDP should show further momentum on the back of increased state spending on the local economy, as evidenced by the growth in the first two quarters of the year. Despite these signs of lingering weakness, we view the second quarter performance as positive and expect both the oil and non-oil sectors to accelerate over the second half of this year and into 2011.
Alongside the expansionary 2010-11 budget, credit growth has already begun to pick up speed, rising by more than 25 per cent y-o-y to the end of June. The increase was led by expansion in lending to the public sector, but private sector credit also grew by more than 10 per cent y-o-y in real terms over the same period, well ahead of the pace of expansion elsewhere in the region.
Embedded image removed - please refer to the Company's website www.epicure-qatarequity.comfor a table depicting major projects underway in Qatar.
Overall, Qatar's economy continues to weather the global downturn well and should stand among the fastest growing economies worldwide in 2010. The IMF estimates 2010 and 2011 real GDP growth at 18.5 per cent and 14.3 per cent respectively, the highest in the world, thanks to ongoing investment in the liquefied natural gas (LNG) industry, which will raise production to 77.4 million tons per year by 2012 (from 31.0 million tons in 2008) and boost export receipts. This strong growth will have favorable repercussions on Qatar's fiscal and external accounts.
Longer term, the government is expected to maintain high levels of capital spending on education, health and transport. Population growth is projected to remain strong over the coming years owing to immigration, although at an annual average of some 6 per cent it will be down from the peak of 17.9 per cent seen in 2007. This in turn will support domestic demand.
Qatar Exchange launches new state of the art trading system
On 5 September, Qatar Exchange migrated from its existing trading platform Horizon to Universal Trading Platform (UTP). UTP, the multifaceted trading platform used by NYSE Euronext across Europe and the US provides a resilient, high performance and scalable market platform to Qatar and the global financial community.
This event caps a year of progress towards achieving the five year development of the Qatar Exchange project which has also seen the Central Bank of Qatar act as Settlement Bank, the Government giving permission to Qatari banks to join the Exchange, and the modification to the Qatar Exchange's index.
The Investment Adviser believes that the Qatari stock market is undervalued and provides highly attractive opportunities. The QE has been one of the top performing markets in the GCC year to date, having gained 10.6 per cent. This reflects the interest of investors who are gradually building up positions and taking a long term view on the market - trailing multiples look attractive and company profits have grown by more than 10 per cent in the first half of the 2010.
Embedded image removed - please refer to the Company's website www.epicure-qatarequity.comfor a table depicting MSCI Trailing Multiples.
Source: Morgan Stanley Research
Note¹ MSCI Arabian Markets
Note² MSCI Emerging Markets
The Investment Adviser looks towards the final quarter of 2010 with optimism, believing the downturn that began in late 2008 and continued into 2009 has run its course. We expect to see growth resume across the region with the pace of expansion building momentum as the year goes on. After a modest slowdown in 2009, we expect economic growth in Qatar to rebound strongly in 2010 and 2011.
Valuations remain undemanding and well supported by robust corporate earnings growth, which the Investment Adviser believes will continue into the second half of the year. The Investment Adviser expects that the profits of the companies in which it is invested will grow by some 20 per cent per annum for the next two years on the back of improved macro economic fundamentals and that Qatar's economic fundamentals remain strong. This should boost investor confidence in sustained earnings growth going forward.
At the end of Q3 2010, the Company's NAV stood at US$0.94 (30 September 2010) compared to US$0.83 as of 1July 2010.
The Company is invested in 23 companies in the GCC, with sixteen of them being in Qatar, six in the UAE, and one in Kuwait (30 June 2010: seventeen in Qatar, four in UAE and one in Kuwait). The total market value of investments was US$221m at the end of Q3 2010 and the Company held cash of 3.6 per cent of NAV.
After achieving good results in Q1 2010, evidence of their ability to overcome the global financial crisis, Qatari companies managed to maintain their good performance in the second quarter. The 42 listed companies on the Qatar Exchange reported growth in net profit for H1 2010 of 10.5 per cent, reaching QR14.9bn compared to QR13.5bn in H1 2009. This result emphasised the strength and durability of these companies as well as the strength of the Qatari economy.
Embedded image removed - please refer to the Company's website www.epicure-qatarequity.comfor a table depicting the net profit by sector of the companies listed on the Qatar Exchange
Source: Qatar Insurance Company SAQ, Market Values as at 30 June 2010
Looking at the sectoral performance of the Qatari market, all the four market sub-sectors reported growth in H1 2010 net profit, compared to H1 2009, with the industrials sector being the weakest. It is worth mentioning that the extraordinary profits included in the Q1 2009 financials for Industries Qatar were the main reason behind the industrial sector H1 2010 not looking better still - excluding the QR800m reported by Industries Qatar during the Q1 2009, the industrial sector would have registered growth of 31.1 per cent in net profit for H1 2010.
We do not expect to see any major negative surprises in the Q3 2010 corporate results and expect that most companies will track their last year results and announce an improved outlook for the remainder of 2010.
The Company's industry allocation is largely unchanged compared to the previous quarter. The Company's largest sector exposure continues to be to the financial services industry. Exposure to the banking sector stood at 55.1 per cent at the end of Q3 2010 compared to 54.0 per cent at the end of Q2 2010.
The Investment Adviser maintains a positive outlook on the Qatari banking sector. The benign economic environment (18 per cent 2010E real GDP growth) in which Qatari banks operate supports our stance on the financial sector. The banking sector remains sound, with banks having provided comfortably against non performing loans (NPLs). During the financial crisis the government's "pre-emptive intervention" helped Qatar to keep NPLs under check - Qatar had the lowest level of non-performing loans in the Gulf region in 2009. NPLs in the Qatari banking sector stood at 1.7 per cent last year compared to 9.7 per cent in Kuwait, 4.6 per cent in the UAE, 3.9 per cent in Bahrain, 3.3 per cent in Saudi and 2.8 per cent in Oman. The Qatari government spent some 6.5 per cent of GDP last year on capital injections and other measures to maintain stability in the sector.
The investment case for Qatari Banks is based on earnings recovery originating primarily from healthy volume growth and an improvement in asset quality. In addition, Qatari banks benefit from attractive valuations, with price multiples mostly below thosem of their regional peers (2010E P/BV of 1.8x vs. 2.4x for Saudi Arabia). Qatari banks also offer high dividend yields (forecast at 6.8 per cent against 4.0 per cent for EEMEA peers in 2011).
Over the next five years, we expect government spending on large infrastructure projects to remain the main driver for loan growth. Although such spending currently benefits only the public sector, we believe it should start to filter into the private sector as soon as the latter part of this year.
Qatari banks have been resilient to the economic downturn relative to their peers. The fall in lending growth was contained (27 per cent y-o-y in H1 2010) and the deterioration in asset quality was limited. We believe such a performance is mainly attributable to the strong macroeconomic environment in which Qatari banks operate. Timely and significant government intervention has also helped banks to weather issues related to the global economic slowdown. We believe the continuing strong macro-economic background, combined with solid fundamentals will be the key factors behind a rapid recovery in the earnings of Qatari banks.
The service sector, which is broadly defined and includes companies in telecommunications and utilities, accounted for 18.9 per cent of all investments. The Company's exposure to the real estate sector stood at 4.9 per cent at the end of the third quarter of 2010. The industries and insurance sectors accounted for a further 12.7 per cent and 4.8 per cent respectively.
Embedded image removed - please refer to the Company's website www.epicure-qatarequity.comfor a pie chart depicting the industry allocation of the portfolio (% of mkt value)
Embedded image removed - please refer to the Company's website www.epicure-qatarequity.comfor a table depicting the top five holdings of the portfolio
Source: Qatar Insurance Company SAQ, Market Values as at 30 September 2010
At 30 September 2010, the top five investments of the Company constituted 59.3 per cent of NAV (59.4 per cent 30 June 2010).
As at 30 September 2010, the Company was invested in sixteen companies in Qatar, six companies in UAE, and one company in Kuwait. Investments outside Qatar constituted 1.2 per cent of the Company's investments.
other news flow
Qatargas to supply LNG to Repsol Energy Canada
Qatargas has signed a long term deal to supply Spain's Repsol with liquefied natural gas (LNG) for export to Canada. The super-cooled gas is destined for Repsol's Canaport import terminal on the east coast of Canada. The duration of the agreement, volumes expected to be delivered and price to be paid were not disclosed.
Canaport LNG - which can pump 28 million cubic metres of natural gas per day into Canada and north-eastern parts of the United States -- is a partnership between Repsol (75 per cent) and Fort Reliance (25 per cent).
QNB receives regulatory approval to operate its first branch in Lebanon
Qatar National Bank Group (QNB), the leading financial institution in the State of Qatar and one of the largest Banks in the MENA region, announced that it has received approval from the Central Bank of Lebanon (Banque du Liban) to open a full service branch in the country. Also during the quarter, QNB announced the opening of its first branch in Mauritania, located in the country's capital and largest city Nouakchot.
Fitch Ratings affirmed Doha Bank's long term rating at 'A' with stable outlook
Doha Bank announced that it's Fitch long term Issuer Default Rating has been affirmed at 'A' with stable outlook. In its ratings report, Fitch highlighted that despite the global financial crisis, Doha Bank's earnings have continued to improve due to improved net interest income resulting from moderate credit growth and well controlled costs.
Al Khaliji USD 1.1bn Emirates Steel Industries finance deal
Al Khalij Commercial Bank (Al Khaliji) and its subsidiary, Al Khaliji France has announced their participation in a US$1.1bn (QR4bn), seven-year financing deal for Abu Dhabi's Emirates Steel Industries (ESI).
Qatar International Islamic Bank injects its capital in Islamic Bank of Britain
Qatar International Islamic Bank announced that the results of the extraordinary general assembly of the Islamic Bank of Britain, held in Birmingham, has approved the increase of the Qatar International Islamic Bank's share in the capital of the Islamic Bank of Britain by issuing new share that makes the former a strategic partner of the Islamic Bank of Britain.
QIB, Al-Futtaim and Aqar sign QR6bn joint venture
QIB, Al-Futtaim, and Aqar Real Estate Investment signed a QR6bn joint venture agreement to construct a state-of-the-art entertainment and retail complex in Doha.
QAPCO announces opening of logistics services establishment in Tripoli Lebanon
H.E. Abdullah Bin Hamad Al-Attiyah, Qatar Deputy Prime Minister and Minister of Energy and Industry, has inaugurated Qatar Petrochemical Company's ("QAPCO") logistics services establishment in Tripoli, Lebanon. QAPCO currently has a global marketing network consisting of 28 overseas representative offices and logistics services establishments.
Qatar Steel signs deal with Brazilian company
Qatar Steel Company (QSC) has signed a long-term contract with Brazil's Samarco Mineracao for the supply of iron ore pellets. Samarco will supply the QSC plant at Mesaieed Industrial City with pellets from 2011 until 2016 under the agreement signed in Doha. The exact annual tonnage of the pellets that will be supplied was not disclosed.
Qatar plans new power plant
Qatar Electricity and Water (Kahramaa) is to set up an electricity plant with a capacity of up to 5,000MW by 2016 to meet rising demand. The proposed plant is expected to be able to supply between 3,000 and 5,000MW. Work on the plant is expected to begin by 2013.
Senyar Industries acquired 49 per cent of El Sewedy Cables Qatar
Aamal Company announced that Senyar Industries Qatar Holding W.L.L. (Subsidiary of Aamal Company Q.S.C.) has acquired 49 per cent of El Sewedy Cables Qatar W.L.L.
Barwa City enters into a murabaha financing with Qatari Diar Finance
Barwa Real Estate, Qatar's second-largest developer has announced that its fully-owned subsidiary, which is building a US$1.36bn housing project in the Gulf Arab state, would enter into a murabaha, or Islamic, financing deal with Qatari Diar Finance. Under the terms of the deal, Qatari Diar Finance, a unit of Qatari Diar, the property arm of the gas-rich state's sovereign wealth fund, will provide funding to Barwa City Real Estate Co., which is developing Barwa City, a 2.7 million-square meter residential project on the outskirts of Qatar's capital Doha.
S&P Raised Nakilat Inc. credit ratings
Qatar Gas Transport Company (Nakilat) has announced that Standard & Poor's Ratings Services raised its long-term corporate credit rating on Nakilat Inc. to (AA-) from (A). The outlook is stable.
S&P increases credit ratings on Qtel
Qatar Telecom (Qtel) has announced that Standard and Poor has increased its credit ratings on Qtel. The long term rating has increased to (A) from ('A-) and the short-term rating to (A-1) from (A-2). The outlook remains stable.
Qtel issues bond
Qatar Telecom Q.S.C. (Qtel) announced the successful pricing of US$1.5bn of senior unsecured notes issued by its wholly owned subsidiary, Qtel International Finance Limited, guaranteed by Qtel. The notes represent the second issuance under its Global Medium Term Note (GMTN) program, originally established in May 2009. The US$1.5bn note attracted substantial interest with global orders in excess of US$15bn.
Qatari Diar sells $3.5bn bond
Qatari Diar Finance, the property arm of the Gulf Arab state's sovereign wealth fund, sold a two-part US$3.5bn bond deal. The US$2.5bn 10-year tranche offers a premium of 190 basis points over comparable U.S. treasuries to yield 5.004 per cent. The US$1bn 5-year tranche carries a yield of 3.665 per cent, a premium of 180 basis points over treasuries.
Vodafone Qatar subscribers reach 600,000
Vodafone Qatar announced it had 600,000 mobile telephone customers at the end of September, giving it a 38 per cent share of the local market.
Embedded image removed - please refer to the Company's website www.epicure-qatarequity.comfor a graph depicting the DSM20 Index since 2006
Embedded image removed - please refer to the Company's website www.epicure-qatarequity.comfor a table depicting the NAV performance of the Company (% net in USD).
Source: Galileo Fund Services Ltd
NAV Performance is unaudited
Performance figures are based on the NAV calculated on the last Thursday of each month and published via the regulatory news service of the London Stock Exchange.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares when redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Additional information regarding policies for calculation and reporting returns is available upon request.
Epicure Qatar Equity Opportunities plc
NAV at launch US$ 0.96
NAV as at 30 Sep 2010 US$ 0.94
Inception Date 31 July 2007
The NAV is estimated net of fees and expenses every week and announced through the regulatory news service of the London Stock Exchange.
As at 30 September 2010
Market Price -Shares US$0.80
Market Price -Warrants US$0.07
Domicile Isle of Man
Shares in Issue 233,419,307 (excluding 101,855 ordinary shares held in Treasury)
Warrants Issued 34,271,000
Maturity Continuation vote at 2012 Annual General Meeting
Year End 30 June
Management Fee 1.25% of NAV
The performance fee is 20% of the of the increase in Adjusted Net Asset Value per Ordinary Share above the Target Net Asset Value per Ordinary Share, subject to the achievement of two tests (i) the year end Adjusted Net Asset Value per Ordinary Share is greater than the High Watermark and (ii) the year end Adjusted Net Asset Value per Ordinary Share exceeds the Target Net Asset Value per Ordinary Share during the relevant Performance Period. The Target Net Asset Value per Ordinary Share for the first performance period is the US$1 placing price increased by the hurdle rate of 8% per annum. For further details, please refer to the Company's admission document.
Investment Manager Epicure Managers Qatar Limited
Investment Adviser Qatar Insurance Company S.A.Q
Administrator Galileo Fund Services Limited
Custodian Anglo Irish Bank Corporation, International PLC
Nominated Adviser and Joint Broker Panmure Gordon (UK) Limited
Joint Broker Oriel Securities Limited
Auditor & Tax Adviser KPMG I.O.M.
Legal Adviser Stephenson Harwood
Bloomberg ticker EQEO
Bloomberg ticker EQEW
Exchange Rate US$1.00=QR3.64
Epicure Qatar Equity Opportunities plc
T: +41 (22) 908 1190
Nominated Adviser & Joint Broker
Panmure Gordon (UK) Limited
London, EC2M 6XB
T: +44(0) 207 459 3600
Oriel Securities Limited
125 Wood Street
London EC2V 7AN
Administrator & Registrar
Galileo Fund Services Limited
46 Athol Street
Isle of Man, IM1 1JB
T: +44(0)1624 692600
F: +44 (0)1624 692 601
Anglo Irish Bank Corporation (International) PLC
Isle of Man, IM1 2SH
PR/ Media Contact
F +44 (0)20 7920 2304
1 Ropemaker Street
The contents of this document have been prepared by Qatar Insurance Company S.A.Q as Investment Adviser to the Epicure Qatar Equity Opportunities Fund PLC ("the Company"). This document has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of the Investment Adviser or the Company to any person to buy or sell any security or investment product. Any reference to past performance is not necessarily a guide to the future. The information and analyses contained in this publication have been compiled, or arrived at from sources believed to be reliable, but the Investment Adviser does not make any representation as to their accuracy or completeness, and does not accept liability for any loss arising from their use. The investments discussed in this report may not be suitable for all investors. and are provided for information purposes only. The ordinary shares and warrants in the Company have not been, and will not be, registered under the United States Securities Act of 1933 as amended (the "Securities Act") or qualified for sale under the laws of any state of the United States or under the applicable laws of any of Canada, Australia, Republic of South Africa or Japan and, subject to certain exceptions, may not be offered or sold in the United States or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) or to any national, resident or citizen of Canada, Australia, Republic of South Africa or Japan. None of the Company, the Manager or any of their respective members, directors, officers or employees, nor any other person, accepts any liability whatsoever for any loss, however arising, from any use of such information or opinions.
Epicure Qatar Equity Opportunities plc
46 Athol Street
Isle of Man, IM1 1JB