Gulf Navigation’s financial fortune reversed sharply into profitable territory in H1-2023. After a loss of Dh2.5 million in H1-22, the company delivered an impressive net profit of Dh28 million.

Cost control measures, improving operating efficiencies, and continued efforts to enhance growth were responsible for the turnaround. The operating profit rocketed to Dh23 million from the previous year’s Dh4.5 million.

After reducing its capital base to tackle the accumulated losses of Dh637.69 million, GNC’s retained earnings increased to Dh6 million in H1-23. Thus, it successfully eliminated all accumulated losses, which accounted for nearly 66 per cent of the company’s capital in Q2-22.

The company also sold one of its petrochemical tankers – ‘Gulf Mishref – and using the proceeds to pay off some of its debt and improve liquidity. A large portion of the company’s debt has been converted into shares in the capital.

Outlook

The DFM index was led higher by stocks like GNC, which rallied sharply above their previous highs. Gulf Navigation’s stock gained 168 per cent in May and June after the management initiated an elaborate financial restructuring and enhanced liquidity.

This momentum of high trading volumes and share price growth continued well into this month, as the stock is trading around Dh6.96 – close to its highs. As per Bloomberg report, the stock’s total returns YTD stand at 405.08%.

The management is striving to lower financing costs and improve the performance of its vessels. The company is steadily overcoming complex challenges rising from supply chain disruptions caused by the pandemic.

However, it has a long way to go to improve its long-term growth prospects. Despite the upbeat financial performance, the company is trading at a price/sales multiple of 37.1x. This is significantly higher than its industry peers, suggesting the stock is overvalued.

– Vijay Valecha, Chief Investment Officer of Century Financial