Mubasher: MubasherTrade Research initiated coverage of GFH Financial Group with a buy/moderate risk rating and 12-month price target (PT) of AED 2.929 per share, implying a 52% upside potential to market price.

MubasherTrade Research used different valuation methods, including excess return model, warranted equity model, and sum-of-the-parts.

GFH Financial is aiming a robust three-year strategy by restructuring its business through four segments, namely: commercial banking, investment banking, real estate, and direct investments.

This strategy will “focus on high yield investments, unlock the value of the real estate portfolio, and grow inorganically through acquisitions,” MubasherTrade Research said in its coverage initiation note on the Bahrain-based financial group.

GFH Financial’s shareholders had previously approved the issuance of 1.7 billion shares at a fair value (FV) of $0.9538 per share. Moreover, the group recently issued 1.2 billion shares to acquire infrastructure projects and investment funds across the MENA and Asia regions through a “share swap”.

GFH Financial Group “is evaluating further acquisitions in the financial services within and outside the GCC to create a diversified financial platform. In line with this plan, GFH raised its stake in Khaleeji Commercial Bank, increasing contribution from a stable and growing commercial banking segment,” the research firm said.

To focus on income-generating investments, “value-accretive exits” and bolster its earnings, the Bahrain-based group’s management has “strived to change the business model by which they used to manage their real estate portfolio, aiming to transform it to a capital-light business model through partnering with several contractors to develop their land bank in return for a revenue share,” MubasherTrade Research highlighted. 

It added that the group is targeting more acquisitions in the defensive sectors and high-yield assets in the GCC, Europe, and the US, added to planning to “monetise its direct investment portfolio” through attractive valuations to maximise.

Commenting on the key risks GFH Financial may face, MubasherTrade Research highlighted any economic slowdown in the GCC and MENA regions, the delay in the company’s execution of its growth strategy, the illiquid nature of real estate assets, and the competition between commercial banks in Bahrain.

The risks also involve a higher interest rate environment, narrower net interest margins (NIMs), and currently-tight liquidity in the market worsening even further, the note showed.

GFH Financial Group is currently listed on the Bahrain Bourse (BHB), the Dubai Financial Market (DFM), and Boursa Kuwait.