Middle East’s Best Companies Hold On

In its third edition, the ranking looks again for the best among the 250 biggest nonfinancial public companies in the Middle East and highlights those that stand out for their economic results and their financial strength and those that are getting the recognition of the financial markets for it.

Although 16 out of this year’s top 25 companies were already ranked among last year’s best-performing 25, there have still been some relevant changes. Saudi Arabian Fertilizer moved to the top spot from last year’s seventh place. Despite a slight drop in return on assets, margins and solvency ratio, Saudi Arabian Fertilizer’s numbers are still top-rank worthy, and the market drove its price/earnings ratio in its last reported year from 8.6 to almost 14, an increase of more than 60%.

Most of last year’s top 25 companies have seen their results and margins drop. Price-to-earnings ratios have nevertheless evolved positively for most of them, so movements in the rankings this year are much more about the relative resilience of companies in a challenging
economic environment.

Check Point Software Technologies, last year’s top-ranked company, managed second position this year. The Israeli cybersecurity solutions provider saw modest gains in its return on assets and has also benefited from an increase in its p/e ratio, albeit not as spectacular as the one Saudi Arabian Fertilizer experienced.

SAUDI DOMINANCE CHALLENGED

Third and fourth positions in this year’s rankings go to Saudi Arabian companies Qassim Cement and Makkah Construction & Development, which held fifth and sixth place respectively last year. To see some real novelty in the list, we jump to fifth position. FMS Enterprises Migun, the highest-ranked newcomer, is an Israeli-based company that manufactures ballistic-protection products for both personal and vehicle armor. FMS is second in the returns-on-assets ranking, with an outstanding 34.7%, just behind Saudi Airlines Catering, which tops RoA with 37.7%.

Other newcomers to the top 10 are Saudi Ground Services at number seven and Jordanian Duty Free Shops at number eight, while Kuwait’s Humansoft, a group of enterprises working in the education sector, comes in at 10th position. Saudi Arabia is still the country that brings the most companies to the Top 25 Best-Performing Companies; but Israel is starting to challenge that hegemony, perhaps reflecting the difficulties that oil-producing countries have faced in recent years.

The ranking for 2015 included 15 names from Saudi Arabia, while in 2016 there were 12, and in 2017 the figure has dropped to 11. Meanwhile, Israel has managed to add two more names to this year’s list, bringing its participation from five companies to seven. The 2017 Best-Performing Companies in the Middle East list also includes two companies from Bahrain, two from Jordan and one company each from Iran, Kuwait and Qatar.

SHUFFLING POSITIONS

Looking at the main changes in the general rankings by sector—in chemicals, rubber, plastics and nonmetallic products—cement companies still hold the lead, with three companies among the top five; although in top place this year is Saudi Arabian Fertilizer. There are some changes in relative positions, but four of the top five were already there last year. Only City Cement is new, taking fifth place from Yamama Saudi Cement.

First and second place in the post, telecommunications and technology sector remain unchanged, but the three Israeli companies that follow are new to the top five: Ituran Location & Control, which manufactures and sells tracking devices; Silicom, a provider of networking and data infrastructure solutions; and CyberArk Software, an IT security company.

The education and training provider Humansoft enters the top five education and health companies for the first time, going straight to the top of the list, a particularly remarkable feat considering it is the only one among the top-ranked companies not to deal in the health sector.

Probably the sector with the most significant changes, metals and metal products, saw the first three positions in the top five taken by newcomers. At the top is Klil Industries, a manufacturer of aluminum systems for the construction industry. Al Yamamah Steel is in second place and Oman Cables third. Saudi Steel Pipe keeps its fourth position and last year’s second-ranked Aluminium Bahrain moves down to fifth position.

Economic forecasts for 2017 in the Middle East are modestly positive, but the price of oil remains low; and regional conflicts continue to place downside pressureon growth.

All countries in the region, except for Israel, saw their ratings by the major rating agencies in 2016 worsen. OPEC’s November agreement to cut oil production for the first time in eight years made way for some optimism; but despite Russia’s unexpected commitment and OPEC members’ efforts to comply, oil prices remain low. The International Energy Agency is forecasting a spike in oil prices by 2020; but in the short term this might not be enough to bring prices significantly higher.

Low oil prices have some upside, as government efforts shift to promote diversification and private capital participation in the economy. Nonetheless, as Giyas Gokkent, senior economist at the Institute of International Finance’s Middle East and North Africa department, told the Khaleej Times, “Lower public investment and appreciation of the US dollar, which is hurting non-oil exports of goods and services, are some of the factors weighing on the non-oil sector.”

Uncertainty about Brexit and EU growth and doubts about the extent of president Donald Trump’s reforms of trade, tax and immigration policies are not helping to improve prospects. “Even in an optimistic scenario for the world economy, it is highly unlikely oil prices will return to anything close to their 2010–2014 averages,” state the authors of the Q4 2016 Economic Insight: Middle East report published by the Institute of Chartered Accountants in England and Wales.

The same report notes that the strain that low oil prices are putting on government budgets is likely to increase the burden on companies in the region through increased taxes, subsidy reforms and spending cuts. Efforts in some countries to “nationalize” the workforce and potential moves toward more-flexible exchange rates could also contribute to increased costs and limit competitiveness for companies in the region.