Shares in Aramex, the Dubai listed logistics firm, gained more than 25% this week after news broke that Abu Dhabi sovereign wealth fund ADQ had tabled a $1.2bn bid for the company. ADQ already owned 22% of Aramex through its Abu Dhabi Ports entity and if the deal completes it will deliver a “UAE based logistics and supply chain mega entity”, but comes at the cost of seeing a company delist from the exchange.
With authorities working hard to convince privately held businesses in the UAE that they are better off in the public domain as this allows investors both locally and further afield to commit capital into the region, the irony of a sovereign wealth fund making this acquisition can’t be overlooked.
A bumpy price history
Aramex has been listed on the Dubai Financial Market since 2005 and over the last 20 years, the share price has been on something of a volatile ride. Trading as low as 0.65Dhs in the wake of the global financial crisis before reaching highs of around 5.5Dhs in 2017, the stock was sitting at 2.2Dhs at the year end. Last week, the Gulf News commented that Aramex had gone through an extensive round of operational and corporate restructuring in the last few years, with the results of this being seen in the last set of results.
The announcement, made before the market opened on Monday 13th January, that ADQ wanted to buy the remaining stock at 3Dhs understandably saw the price rise, but only from 2.31Dhs to 2.65Dhs. That’s below the offered price, so what was the driver?
Circuit breakers triggered
The Dubai Financial Market incorporates the concept of circuit-breakers into its operations. Popularity of these levers in offering a degree of price stability surged after 1987’s Black Monday saw stock markets across the globe collapse as panic selling set in.
Whilst not all exchanges use them and trigger levels do differ, for an actively traded share in Dubai, the circuit breaker is applied if a one day gain reaches 15% – or a one day loss gets to 10%. For lesser traded shares, the circuit breaker kicks in when the share price moves 5% in either direction in a single day.
Inevitably extending the run higher
It’s perhaps no surprise then to learn that the gains continued through Tuesday’s session, with a dramatic increase in volumes being reported. Some 32 million shares changed hands, well up from the 2.5 million that were exchanged on Monday following the publication of the news.
Whilst the bid was reported in a timely manner, it suggests that there can be a lag when it gets to short term investors digesting and acting on such information. The speed at which the price appreciation was seen on Monday also indicates that there was only a limited amount of stock resting on the order book, with this limited liquidity amplifying the price impact.
Shares advanced as high as 2.93Dhs before a theme of profit taking emerged, with some modest selling pressure being maintained into the latter part of the week. However, even if the deal doesn’t complete, these events have thrown a spotlight on the potential of the Aramex business and emphasise the improved financial performance, too.
Tony Cross is a seasoned market commentator with over 15 years of experience, delivering engaging and insightful content for both journalists and investors. Specializing in macroeconomics, UK blue-chip equities, and intermarket analysis, his commentary is highly valued for its clarity and its knack for eliminating unnecessary jargon.
You can contact Tony on tony@goodmoneyguide.com
