Abu Dhabi’s International Holding Co. is ‘next Berkshire Hathaway’

Reuters

While the global markets are obsessed with the Russia-Ukraine war and the Federal Reserve, GCC markets have been having a great run on the back of strong oil prices. 

However, Abu Dhabi’s International Holding Company (IHC) is one company that seems particularly immune to global volatility. 

IHC is a conglomerate with 100+ entities in nine different business segments ranging from real estate to healthcare employing about 7,800 employees.

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The Royal group holds 74% while the remaining shares are available for trading in the stock exchange as free float. And its share price performance is turning heads. 

Though the company was listed in 2005, it remained small in operations as it initially focused only on fish farming and animal feeds.

Its real inflection point emerged in 2017-18 when its name was changed from Asmak to IHC and then a big explosion in performance followed suit.

The stock price of IHC rocketed from AED 1 at the beginning of 2019 to AED 295 by June 2022.

Its market capitalisation jumped from AED 11 billion in 2019 to AED 538 billion making it the largest listed stock in the Abu Dhabi exchange. 

During this period revenues also multiplied from AED 1 billion to AED 28 billion. The business model of IHC is primarily focused on rapid acquisitions followed by realisation of profits.

And while comparison to Berkshire Hathaway may look far-fetched right now given the fact that the US finance giant employs nearly 378,000 people with $900 billion in assets, there are parallels around their business models.

However, it should be noted that the sudden extraordinary spike in the stock during the last three years created some valuation concerns too.

The most followed price to earnings ratio jumped from a modest 10 in 2015 to over 200 in 2020, though it has cooled down to 59 now. But that still is very high.

What’s more, its price to book measure jumped from 1.4 in 2015 to over 16 now, again a level that can be considered elevated. 

Presently, IHC is focused on growth and, therefore, is not a dividend stock. From a long-term investor value perspective, the stock should mellow on valuation and morph into a dividend yielding stock which can then set the stage for a Berkshire Hathaway-esque long-term performance. 

Also, IHC would do well to encourage equity research coverage for global investors to gain traction on the story. 

Admittedly, it is not easy to perform equity research on a holding company with nearly 100+ subsidiaries cutting across several sectors.

When benchmarked globally, stocks from the region enjoy poor research coverage. With MSCI index inclusion, this has to change for the better if stories like IHC need to go global. 

Value of USD 1 invested on October 2005 (listing of IHC)
IHC	221.85
Abu Dhabi Index (ADX)	1.75
Dubai Index (DFM)	0.41
S&P GCC Composite	0.76

M R Raghu is the CEO of Marmore MENA Intelligence, a subsidiary of Kuwait Financial Center (Markaz), an asset management company.