Wealth Monitor_June-July 2015

MASTERING THE MARKETS | Sweat Equity

Worth the Sweat

Sweat equity is all the sweat and the hard work that goes into the growth of a start-up. Its right
valuation is critical for a company’s success especially when there is more than one founder

Sweat equity, simply speaking, refers present stake in the company comes to differ in many respects.
to the value brought in a start-up be worth AED 1.5 million (3/4 or 75% after The most important difference being,
company by the founder/owner divesting 25%). And then if you subtract while sweat equity compensation refers to
through his skills/knowledge, time, efforts your initial investment of AED 100,000, the giving shares at a discount or sometimes
and the sheer hard work. This includes sweat equity you’ve put in the company is without monetary considerations, ESOP
anything ranging from as putting together worth AED1.4 million (AED 1.5 million — is a type of employee benefit plan giving
the business plan, drumming up business, AED 100,000). employees the option to buy shares at a
and all the sweat that helps the fledgling Sweat equity can be used in a number of predetermined price.
start-up get on its feet and push its value. ways to further add value to a business. For Further, there is often a cap placed on the
instance, sweat equity can be used to lower amount of total sweat equity shares that
Arriving at the right valuation of the the start-up cost of a business. Additionally, can be issued. Similarly, the price of sweat
sweat is critical for the functioning and it can also be used by an owner/founder equity shares to be issued to employees
growth of the start-up. Let’s take it this to remunerate his employees in addition should be at a fair price calculated by an
way. Suppose you have formed a start-up to salary. This is called sweat equity independent valuer.
and have invested AED 100,000 in it. After a compensation or sweat equity
year or so, when your business gets off the share, which is believed
ground you plan to sell a part of your stake to motivate employees as
in the company to an angel investor. The they can closely relate their Sweat equity is the non-cash
investor asks how much of your own equity contribution of a business owner
have you put into the company. success with the success of
the corporate entity for which
It’s not AED 100,000, by the way. Sweat they work. These shares are
equity isn’t necessarily equivalent to the issued to eligible employees It’s an intangible asset
money a founder or owner invests in his
business. While valuing the sweat equity for providing know-how or
when there is only one founder is easier, intellectual property such as It’s not the same as the
it could get a bit trickier when there are patents, copyrights, design market value
two or more founders/promoters. Let’s try and development of software
to understand the valuation process when etc. An Employee Stock
there’s only one founder. Option Plan (ESOP) is a form
of employee ownership. It’s
Suppose after a year you sell a 25% an incentive plan for employees making
(1/4th) stake to an angel investor for them part owners of a company’s stock. A
market value of AED 500,000. This means number of companies are using ESOPs as 49
the total market value of your business is of
AED 2 million (AED 500,000×4). Converting an essential tool to reward and retain their
your initial investment of AED 100,000 into key employees. Though ESOPs and sweat
present market value of AED 2 million, your equity shares sound similar, in reality they

June-July 2015 | www.wealth-monitor.com

TECHNOLOGY TRENDZ | Cloud Trading

Catching

theSignals

Trading in the cloud, also called Ichimoku Cloud Trading System, is a
bespoke charting platform for market traders and technical analysts to
identify the support and resistance levels and read the trading signals

Over the years, technical analysts have Ichimoku enables traders to identify the
been devising a number of charts to trend and look for potential signals within
represent market trends. Trading in that trend. The cloud sets the overall tone
the clouds is a popular method of charting, and provides a longer perspective on
widely used in the Japanese financial the price trend. The charting system of
markets to identify a trading bias (buy/sell Ichimoku Kinko Hyo was developed by a
pressures), momentum spot corrections Japanese named Goichi Hosoda. Following
and turning points of a security forex or 20 years of testing the technique was made
investment. Ichimoku, which means one public in 1968, and since then Ichimoku
cloud, is a set of indicators used collectively Kinko Hyo has been used extensively
50 to identify support and resistance levels, to trade stocks, futures, currencies and
spot trend direction and trading signals. commodities. However despite enjoying
Ichimoku cloud is also known as Ichimoku popularity in Asia, it was not until 1990s
Kinko Hyo, which means ‘one look that Ichimoku made its appearance in the
equilibrium chart’. West.

www.wealth-monitor.com | June-July 2015

TECHNOLOGY TRENDZ | Cloud Trading

Denotes the mid-point of the On a daily chart, this signi es the This signi es the mid-point
52-day high-low range, on mid-point of the 26-day (almost of the 9-day high-low range

the daily chart. one month) high-low range. on a daily chart.

Senkou Span B Kijun-sen Tenkan-sen
(Leading Span B) (Base Line) (Conversion Line)

Chikou Span The midpoint between the conversion
(Lagging Span) line and the base line. The Leading Span
A forms one of the two Cloud boundaries.

Senkou Span A
(Leading Span A)

The 5 lines of Ichimoku Cloud Source: stockcharts.com

The High Fives First, the trading bias is bullish when A relatively strong trend is required 51
The Ichimoku Cloud chart has 5 indicator prices are above the lowest line of the to sustain a trading bias. Prices remain
lines at any given time. While making cloud. To put it differently, prices are either above the lower cloud line during a strong
trading decisions these 5 separate line are above the cloud or remain above cloud uptrend and below the upper cloud line
not to be used in isolation, but collectively. support. Second, price moves below the during a strong downtrend, according to
Instead, they are used to form an integrated Base Line to signal a pullback and improve stockcharts.com.
picture of price action that a trader can the risk-reward ratio for new long positions.
discern and read at a glance. Thus, a simple Third, a bullish signal triggers when prices Technical analysts use volume to
look at an Ichimoku chart gives a trader the reverse and move above the Conversion confirm signals, especially buy signals. A
trends related to sentiment, momentum Line. buy signal with expanding volume would
and strength. carry more weight than a buy signal on low
There is a pecking order to the process. volume. Expanding volume shows strong
The Strategy Behind First, the trend will be bullish as defined interest and this increases the chances of a
Traders use the Ichimoku Cloud to identify by the cloud. Second, the stock pulls back sustainable advance.
the overall trend and establish a trading with a move below the Base Line. Third, the
bias. Once this is set, they wait for a stock turns back with a move above the However, the efficacy of trading in clouds
correction when prices cross the Base Line Conversion Line. is yet to be fortified by strong evidence to
(red line). According to stockcharts.com, an entice traders to switch over to trading in
actual signal triggers when prices cross the For a Buy Signal, the following three clouds. As every experienced trader knows,
Conversion Line (blue line) to signal an end criteria are to be met, either the price is technical analysis deals in probabilities and
to the correction. This trading strategy will above the lowest line of the cloud (bullish price is determined by the interplay of
set three criteria for a bullish signal. bias), the price moves below the Base Line those who are already in the market and
(pullback), or the price moves above the those who are entering the market.
Conversion Line (up turn).

June-July 2015 | www.wealth-monitor.com

DASHBOARD

DASHBOARD

JUNE-JULY 2015

The Dashboard section gives insight into a whole lot of regional and global financial
transactions including, but not limited to, IPOs, M&As, corporate earnings, banking, private
equity & venture capital deals, Sukuk issuance, crowdfunding deals, investment patterns,
sovereign wealth fund deals, among others. In this issue, Wealth Monitor gives a summary
of DFM’s Q1 performance, sector valuations of all GCC markets, a snapshot of high dividend

yielding stocks in the region, and M&As in Q1, 2015.

5522 Waiting for Direction P.53

DFM’s Performance

Sector Valuations P.54

In search of Value

High Dividend Yielding Stocks P.56

Reaping Dividend

M&As P.58

Taking a Breather

www.wealth-monitor.com | June-July 2015

DASHBOARD | Performance

Waiting for Direction DFM Trading ActivitiesGFH
– First Quarter 2015ARTC
The Dubai Financial Market General Index decreased by 6.9% to 3514.4 points at UPP
the end of Q1, 2015 compared to 3774 points at the end of Q4, 2014. The value of 8,000 DEYAAR
shares traded during this quarter reached AED 38.2 billion, compared to AED 66 7,000 DUBAIPARKS
billion recorded during the previous quarter, down 42.1%. 6,000
5,000
0.04% 5.25% 4,000
0.39% 3,000
2000
Shares Traded by Sector 34.63% 1000EMAAR
ARTC
39.84% 0 DAMAC
DIB
Most Active Companies byDIC Source: Dubai Financial Market (DFM) quarterly bulletin Q1, 2015
Trading Volume – Million Shares
5.61%
8,000
10.89% 7,000
6,000
1.79% 5,000
4,000
1.56% 3,000UNIKAI
2000DRC
0.61% 4.55% Value Traded by Sector 1000 AGLTY
0.98% GULFA
17.24% 0 NGI
2.79%
Most Active Companies byUNIKAI
Percentage of Total 12.30% Trading Value – Million AEDDRC
GULFA
60.60% 0.11% 25,000 NGI 5533
0.82% NIND
20,000

15,000

10,000

5000
0

Less Active Companies by
Trading Volume – Share

100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0

Less Active Companies
by Trading Value – AED

June-July 2FI0nin1vae5nstc|miawel nawtnSdwe.rwviceeaslth-monInistuorra.nccoem Services Transportation Consumer Staples Industrial Real Estate and Telecommunication
Construction
Banks

DASHBOARD | Sector Scan

In Search of Value
Are the GCC markets cheap or expensive? Here
is the sector-by-sector valuation perspective

P/EValues Saudi Arabia 16.68 11.94
Transportation Dubai, DFMGI
12.87 Telecom & IT Se1r6v.6ic8es
15.26 Petrochem 10.92 B11a.n3k0s
15.34 Banking and Financial Services Telecom
Dubai 14.15
15.51 Cement Rea2l7E.5st6ate P/E Values CoSntaspulmeser
17.98 Saudi Arabia, TADAWUL Index
18.85 Construction 16.13
19.04 Hotel & Tourism FinInavnecsiatml Seenrvti&ces
23.81 Energy and Utilities
26.68 Agri and Food 14.52
Industrial
28.10 Multi Investment
28.36 Media and Publish In1s3u.r4a3nce
29.17 Industrial Investment
29.66 Retail Oman 11.99
11.46
31.32 Real Estate P/E Values

10.06
10.10
54 33.40 Transport Oman, MSI

37.57 Insurance Financial
Industrial

Service
www.wealth-monitor.com | June-July 2015

Abu Dhabi DASHBOARD | Sector Scan
P/E Values

Insurance Industrial Telecom Abu Dhabi Index Energy

36.79 20.96 17.60 12.76 11.94 10.99 10.27 9.72 6.88 3.04

Consumer Staples Services Banks Real EstateFinInavnecsiatml Seenrvti&ces

Bahrain
P/E Values

Industrials Insurance Qatar, QSI
Bahrain, BAX 13.27 13.05
Insurance
Telecom Bank & Financials
15.11 13.91

Commercial Banks Transportation Qatar
Services 14.03 P/E Values
P/E Values Real Estate
30.04
15.8
Hotels & Tourism 17.51 15.16
Kuwait Stock Exchange (KSE) IndexInvestment Firms Consumer Goods Industrials

12.7 Kuwait

KW Weighted Index 55

11.7

KW 15Index

14.7

Oil & Gas

9.7

Basic Materials

14.9

Industrials
C19o.n9sumer Goods

26.3

Healthcare

11.4

Consumer Services

6.7

Telecommunications
1B2a.n4king

9.4

Insurance

13.6

Real Estate
F1i4.n2ancial Services

13.5

Technology
Source: Marmore Research (Values as of May 18, 2015)

June-July 2015 | www.wealth-monitor.com

Note: P/E value computed based on last 12 months earnings

DASHBOARD | Stock Scan

Reaping the Dividends
Here’s a collection of select stocks in the UAE
and the wider GCC o ering high dividend yields

Gulf International Services Al Waha Capital
4,187 6.71 1,350 11.76
Boubyan Petrochemical
1,050 6.91

United Arab Emirates Ras Al Khaimah Ceramics
721 10.80
Taiba Holding
1,784 6.95 <p style=" oat: right;">

Doha Bank Jazeera Airways
3,975 7.14 712 9.34

Etihad Etisalat Bahrain Northern Region Cement
7,187 7.14 Telecommunications 1,092 8.35

Div Yield (%) 1,500 7.35
Market capitalization (USD bn)

56 Oman 6.91 4.95 4.60 4.26
TelecoCmoOmmSAuaOnniGcations TeleOcomCmaomnSiAuQOnaiGtcaartiions MarkSehteilnlgOCmoaSnAOG IOndmuasntrCyaSbAleOsG

3,245 1,299 494 493

www.wealth-monitor.com | June-July 2015

DASHBOARD | Stock Scan

Div Yield (%) Market capitalization (USD bn)

Kuwait Bahrain

6,618 7.30 4.08 3.45
Mobile Telecommunications Co KSC 4.25

738 850 2,130 1,285 803 823
Qurain Petrochemical National Industries BBK BSC Al Baraka Banking
Group Holding SAK Arab Banking Al Salam Bank
Industries Co KSC Corporation BSC Group BSC Bahrain BSC
2,955
4.95 Qatar
Agility Public 8.70
Warehousing Co KSC
6.38 Div Yield (%)
890
Kuwait Cement Co KSC 2,106 4.70 Al Khalij Commercial
Bank QSC

4.55 Market capitalization (USD bn) 23,687 4.91 Industries Qatar
4.93

3,348 4.97 Qatar International
Islamic Bank QSC

5,097 5.09 Commercial Bank
2,882 of Qatar QSC

2,286 2,167

Qassim Cement Arabian 5.45 Aamal Co QSC
Co SJSC Cement Co SJSC
6.30
6.15
Yanbu National 5.41 607
Petrochemicals
Co SJSC Tabuk Cement
Co SJSC
8,325
5.93

5.25
Sahara
Petrochemical
Co SJSC
1,896

57

Saudi Arabia

June-July 2015 | www.wealth-monitor.com

Source: Marmore Research
Note: Dividend Yield as of May 18, 2015; Companies whose market capitalization is greater than USD 500mn have only been considered for analysis

DASHBOARD | M&As

Taking a Breather

Mergers and acquisitions (M&A) activity targeting companies based in the Middle East, excluding Israel, in the rst three months of
2015 dropped to its lowest level of the last two years, according to Zephyr Quarterly M&A Report for Q1, 2015. Volume dipped by a
quarter from 78 transactions in Q4 2014 to 58, while value plummeted 84% from $9.23 billion to $1.45 billion over the same
timeframe and was half the $2.98 billion recorded at the same time a year ago.

Deals by Volume and Value

Total deal value (mil USD)

1,452
9,236
5,692
6,706
2,985
1,977
1,593
6,885
4,855

58 78 62 68 78 88 77 98 111 No of deals

Announced date Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
2015 2014 2014 2014 2014 2013 2013 2013 2013

Deal Types by Volume in Q1 2015

Capital increase (1) IBO (4)
Minority stake (36)
The region’s largest M&A deal of the
quarter was Qatari Diar Real Estate www.wealth-monitor.com | June-July 2015
Investment Company selling its entire
shareholding in Al-Khalij Commercial
Bank to sovereign wealth fund Qatar
Investment Company for $373 million.
This was closely followed by private
equity rms TPG Capital and Abraaj
Capital agreeing to purchase a majori- Acquisition (18)
ty stake in Saudi Arabian fast-food
chain Kudu worth an estimated $320
million. With a combined value of
58 $693 million, these two transactions

accounted for almost half of the
region’s overall M&A value for the
quarter.

DASHBOARD | M&As

M&A value targeting all of the region’s countries declined quarter-on-quarter with the sharpest decreases seen in Kuwait and the
UAE. Qatari companies attracted the greatest amount of investment, with deals worth an aggregate $574 million targeting the
country in Q1 2015 compared to $606 million last quarter. Saudi Arabia ranked second with $370 million ploughed into the
country, the second successive quarterly decline. M&A value targeting Kuwait plummeted from $3.34 billion last quarter to $233
million, while in the UAE it fell at an even faster rate to $164 million from $4.26 billion in Q4 2014. By volume, the UAE led with 16
transactions targeting the country’s companies between January and March, compared to 31 last quarter.

Target Countries by Volume

31 Q1 2014 Q4 2014 Q1 2015
18 16
27 9 11 698 Source: Zephyr M&A database from Bureau van Dijk
18 7 5 34
13

UAE Jordan Kuwait Saudi Arabia Qatar

4 63 542 321 1 00

Oman Bahrain Lebanon Iraq

Deal Types by Value in Q1 2015 (mil EUR)

There was a signi cant decline in M&A Capital increase (201) Acquisition (196)
activity targeting the banking sector, IBO (489)
one of the region’s mainstay indus- 59
tries, with deal value down from $4.19
billion in Q4 2014 to $400 million in Minority stake (707)
Q1 2015, while volume halved from
18 to 9 transactions. M&A value in
construction, another key sector, also
fell sharply from $1.02 billion to $180
million, while dealmaking targeting
the region’s education and health
industry decreased quarter-on-quar-
ter from $682 million to zero. There
were notable increases in M&A value
targeting the hotels and restaurants,
gas, water and electricity and food,
beverages and tobacco industries.
June-July 2015 | www.wealth-monitor.com

THE LAST LAUGH | Cartoon Strip

Now no business issue or financial topic is too hard to understand. Through this comic strip,
our in-house cartoon characters Thawr (Bull), Dub (Bear) and Hakeem (Wise Man) guide you
through the maze. This issue features the outlook of the UAE’s and the region’s stock markets.

60

www.wealth-monitor.com | June-July 2015

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