Mysterious 2,572% Stock Rally Has Traders Scratching Their Heads

(Bloomberg) --

An Abu Dhabi-based investment holding company is leaving traders and investors scratching their heads after a 2,819% surge in its stock in the past 12 months with very low trading volumes.

International Holdings Co. PJSC, which derived most of its revenue in 2019 from fish farming in the United Arab Emirates, has reached a market value of $14 billion, up from about $133 million a year ago. The steep rally in its shares hasn’t been dented by this year’s global equity market meltdown sparked by the coronavirus pandemic, or the collapse in oil prices which roiled Middle-Eastern markets. The company’s shares are up 351% in 2020.

The uninterrupted surge has made it the best performing stock worldwide in the past 12 months among companies worth $1 billion or more, and IHC is now the fifth-biggest listed group in the U.A.E. by market value, after Emirates Telecom Group Co., First Abu Dhabi Bank PJSC, Emirates NBD PJSC and DP World Plc.

The stellar rise in the shares is not easy to explain: At the end of last year, the company had total assets of only about $1.1 billion, with net profit for the year at $138 million, according to its annual report. It has been on a buying spree since the start of 2019, although none of the acquisitions had big price tags. PAL Cooling Holding LLC features among its biggest purchases, after IHC issued new shares worth about $357 million to pay for the company.

The stock advanced 9.2% to 27.96 dirhams in Abu Dhabi on Monday, while the local gauge rose less than 0.1%.

Despite the sharp rise in the shares over the past year, trading volumes have been extremely low. In the past past 12 months as of May 10, there were 9,585 different trades on the stock, an average of 30.9 per day.

On April 13, the day with the highest volume of shares this year, twelve different big block trades were settled at 17.24 dirhams ($4.69), a 15% increase from the previous close. The day after, two big block trades closed with prices of 18.22 dirhams and 18.32 dirhams, respectively, and the stock finished the session 13% higher. In those two sessions alone, the company’s market capitalization increased by about $2.2 billion.

In a statement to the bourse dated April 15, IHC said that the change in price on those two days was due to the increase in demand (bid) and lack of orders (ask) in the market. In the statement, it reaffirmed its commitment to the disclosure “of all events that may affect the share price, and comply with all governance controls and transparency.”

IHC’s second-biggest shareholder is the Royal Group for Corporate Management LLC, led by Sheikh Tahnoon Bin Zayed Al Nahyan, a member of Abu Dhabi’s royal family who became IHC’s chairman in April. The biggest individual stake owner, Pal Group of Companies LLC, is a subsidiary of the Royal Group that received shares in the holding as the payment for the sale of PAL Cooling last year. Together, the two shareholders own more than 80% of the listed group.

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Sheikh Tahnoon is also the chairman of ADQ, formerly known as Abu Dhabi Development Holding Co., a large company in the oil-rich emirate which has assets in several different industries including the Abu Dhabi Securities Exchange, the bourse on which the stock trades.

IHC, Royal Group and its subsidiary Pal Group didn’t respond to multiple phone calls and emails asking for comments. Abu Dhabi’s stock exchange didn’t respond to a request for comment about the increase in the shares price. The U.A.E.’s Securities and Commodities Authority said that disclosure is a responsibility of the exchange and suggested to contact the bourse.

According to data tracked by Bloomberg, no equity analyst covers the stock despite its size. This compares with at least three analysts covering most U.A.E. firms worth $5 billion or more.

In January, EFG-Hermes said in a note that, following the increase in the share price, the stock could be poised for an inclusion by index compiler MSCI Inc. in its popular emerging-market benchmark, an event that would prompt passive investors who track the index to buy the stock.

When reached by Bloomberg, the index provider declined to comment on whether it is considering to add IHC in its benchmarks. Market value, free-float, trading volumes and foreign ownership caps are among the main criteria used by MSCI in its decisions on index inclusions. MSCI also requests stocks have “sound long- and short-term liquidity,” according to its methodology.

Last March, FTSE Russell added IHC to its FTSE Micro Cap Index, based on trading data from the end of last year. Asked about the addition of the stock to the micro cap group and the due diligence done prior to the inclusion, a FTSE Russell spokesman said the index provider cannot comment on individual companies.

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