Shuaa breaks even but remains on shaky ground



Shuaa Capital, the investment bank based in Dubai, has broken even in the last quarter despite reduced activity in its brokerage business.

The bank posted net income of Dh180,000 (US$49,010), compared with a net loss of Dh269.7 million in the third quarter last year.

However, traders warned that profits were still fragile and could be reversed by the end the year. Shuaa Capital has made a loss in five of the previous eight quarters.

"They're gradually coming out of the woods," said John Tofarides, a financial analyst at Moody's, the credit ratings agency.

"But I think there's still much room to go in terms of improving profitability."

However, Mr Tofarides said the bank may encounter difficulties as it sought to increase profits.

"The general environment for investment banking in the region isn't very positive at the moment," he said. "They've got things in the pipeline, but market conditions are not healthy."

He said Moody's had given Shuaa Capital a stable "Ba2" rating because of its high level of capitalisation.

Majid al Ghurair, the chairman of Shuaa Capital, said: "Recording a profit, albeit small, is an important achievement in an extremely challenging environment characterised by the lowest market activity since 2004."

The turnaround was driven by a reversal of losses from "other investments", which turned a profit of Dh6.2m this quarter, up from a loss of Dh254m in the same quarter last year.

A company spokesman said those profits resulted from investments not managed by Shuaa. The results were also buoyed by the investment banking division, which recorded a profit of Dh2.9m, an increase of 625 per cent on the same period last year.

However, Shuaa Securities, the bank's brokerage division, recorded a loss of Dh3.7m, down from a profit of Dh4.5m in the same period last year. Revenues plunged 60.5 per cent to Dh5.8m.

"The third-quarter results were at least positive and not a loss. That should give investors some comfort," said Marwan Shurrab, a fund manager at Gulfmena Alternative Investments.

"They're repositioning and focusing on mainly fee-generating operations. They're on the right track."

However, Mr Shurrab said there were still some concerns because the bank was registering a year-to-date loss of Dh36.9m.

"The fourth quarter is going to be monitored heavily to see if this is still sustainable," he said, adding that historic lows in market volume could test the bank's profitability. High volumes "are not coming back yet", he said.

The bank's shares held steady for the third day at Dh1.17, having fallen back from a peak of Dh1.25 on November 1.

How will Gen Alpha invest?

Mark Chahwan, co-founder and chief executive of robo-advisory firm Sarwa, forecasts that Generation Alpha (born between 2010 and 2024) will start investing in their teenage years and therefore benefit from compound interest.

“Technology and education should be the main drivers to make this happen, whether it’s investing in a few clicks or their schools/parents stepping up their personal finance education skills,” he adds.

Mr Chahwan says younger generations have a higher capacity to take on risk, but for some their appetite can be more cautious because they are investing for the first time. “Schools still do not teach personal finance and stock market investing, so a lot of the learning journey can feel daunting and intimidating,” he says.

He advises millennials to not always start with an aggressive portfolio even if they can afford to take risks. “We always advise to work your way up to your risk capacity, that way you experience volatility and get used to it. Given the higher risk capacity for the younger generations, stocks are a favourite,” says Mr Chahwan.

Highlighting the role technology has played in encouraging millennials and Gen Z to invest, he says: “They were often excluded, but with lower account minimums ... a customer with $1,000 [Dh3,672] in their account has their money working for them just as hard as the portfolio of a high get-worth individual.”

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COMPANY PROFILE
Name: ARDH Collective
Based: Dubai
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Sector: Sustainability
Total funding: Self funded
Number of employees: 4