Best-Performing Companies In The Middle East

Global Finance’s second annual ranking of the Best-Performing Public Companies in the Middle East highlights those companies that are best-in-breed, those that outperform their peers in terms of financial strength and growth and that are being recognized as such by investors.

There were a number of big moves in this year’s rankings, although many of the companies that made the list last year are again in the top 25 this year. Check Point Software Technologies of Israel moved up from eighth position last year to take the top spot in this year’s ranking, despite seeing little change in its ratios. Nasdaq-listed Check Point grew revenue by almost 9% in 2015 and reported earnings of $3.74 a share for the year. Its price-to-earnings ratio on a trailing 12-month basis was 22.70.

Check Point’s rise in the rankings reflects a big change in the list this year—many companies saw ratios drop, particularly P/E ratios, as global stock markets have taken a beating. Those that held firm have benefited and moved up the rankings.

Last year’s top-ranked corporation, diamond-grading equipment maker Sarine Technologies, is a prime example. The firm dropped to 11th place in the 2016 list after its P/E ratio nosedived—going from 30.97 when the 2015 list was created to just 9.18, as data was compiled this year. Taro Pharmaceutical Industries, which was established in Israel, jumped from sixth place in 2015 to second place this year. The company managed to squeeze out profit margins of 67.08, up from 58.46 when last year’s rankings were compiled.

Coming in third this year is a newcomer to the list, Qatar’s medical services and hospital owner Medicare Group. Another newcomer to the list took fourth place and also holds the distinction of being the first Iranian firm to make the list: banking systems and software provider Informatics Services. Rounding out the top five in fifth place is Qassim Cement of Saudi Arabia, which moved down a slot in this year’s ranking.

Last year’s list of the Top 25 Best-Performing Companies included 15 names from Saudi Arabia, five Israeli firms, two Qatari companies and two Bahraini names. This year’s list is much more geographically diverse. In addition to 12 Saudi, five Israeli, two Bahraini and two Qatari companies, it includes one company each from Oman, Jordan, Iran and Kuwait.

Jordan’s Arab Potash, which harvests minerals from the Dead Sea, makes the list for the first time, coming in 17th. A’Saffa Foods of Oman breaks in at 21, and Kuwait National Cinema joins at 23.

We have changed some of our sectoral delineations in this year’s list to mesh with those of our data provider. This makes comparisons with last year’s sectoral breakdowns challenging. But we would highlight two firms that lead their sectors for the second year in a row: Herfy Food Services in the food, beverages and tobacco category, and Makkah Construction & Development of Saudi Arabia, which takes top spot in the construction and real-estate sector.

Companies in the region face some tough market challenges. In March, Moody’s placed regional economic powerhouse Saudi Arabia’s Aa3 rating on review for a downgrade. Growth in the region is slowing. Oil prices are deeply entrenched in a “low-for-long” cycle with no end in sight. Non-oil growth is expanding, but at a very slow pace. Political upheaval and unrest continue in various parts of the region. But there are some bright spots.

For one thing, low-for-long oil prices are forcing governments in the region to put more focus on non-oil sector growth—a goal that has been discussed for years to little avail in most countries. During the years of record-high oil prices, there was little incentive for oil-producing nations to push reforms favoring non-oil growth. Now that is changing, and companies in non-oil sectors are benefiting.

As an example, Emirates NBD Saudi Arabia Purchasing Managers’ Index rose in February to 54.4—from 53.9 in January—indicating that non-oil sector growth is increasing in pace. Job creation in the non-oil sector also increased.

“The improvement in non-oil sector expansion in February is encouraging, particularly as external demand appears to have picked up after a particularly weak start to the year,” Khatija Haque, head of Middle East North Africa research at Emirates NBD, stated. “Overall, the data suggest that the non-oil economy in Saudi Arabia is growing despite low oil prices, albeit at a slower rate.”

In addition, the Saudi government appears to be making strong efforts to deal with the impact of low oil prices on its economy. Public spending is budgeted to be down this year for the first time in 14 years. Energy subsidies, are expected to be reduced this year, as well. “Other reforms include capping the public wage bill, the introduction of taxes on goods including tobacco and soft drinks, more privatization and the establishment of a new finance unit to oversee a medium-term expenditure framework,” noted a recent report entitled Economic Insight: Middle East Q1 2016, published by finance and accounting trade body the Institute of Chartered Accountants in England and Wales. The report predicts Saudi GDP growth in 2016 of 1.2%. It states that “low oil prices in 2016 will result in governments more committed to fiscal consolidation.”

The latter, coupled with the need for major infrastructure development, could create opportunities for a number of sectors. In the case of the UAE and Qatar, investments are required to support their hosting of the World Expo 2020 and the World Cup 2022, respectively. According to a report by Standard & Poor’s, Gulf countries will spend approximately $330 billion on infrastructure projects over the next four years. But the report stipulates that “Gulf sovereigns as well as the region’s banks will have fewer resources at hand to support the region’s infrastructure rollout plan over the next years—especially if oil prices decline further or remain low for longer.”

“This is one reason why Gulf countries are starting to look at alternatives such as public-private partnerships (PPP),” said Standard & Poor’s credit analyst Karim Nassif, the report’s author. There is a gap of as much as $270 billion between expected government spend and projected spending needs over the period to 2019, according to the report. Some of that could be filled by PPP—which would undoubtedly be a boon to related industries in the region.

The Middle East Best-Performing Companies list ranks publicly traded, nonfinancial companies in the region based on measures of profitability, financial strength and market value. To determine performance, we look at each company’s return on assets, profit margin, solvency ratio and price/earnings ratio and assign a ranking of 1 to 250 on each measure—the lower the number, the higher the rank. To be considered, firms must rank in the top 250 companies in the region, based on market capitalization. The countries covered by the ranking include Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Palestinian Territory, Qatar, Saudi Arabia, Syrian Arab Republic, United Arab Emirates and Yemen. Data is accurate as of March 1, 2015.

Data source: Orbis by Bureau Van Dijk