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Drake & Scull to grow on foreign expansion

Established UAE builder sees future in wider operations

Drake & Scull International (DSI) is one of the elder statesmen in the country's construction sector, but its relatively recent expansion outside the UAE will be the key driver of its growth. The stock is down almost a third in the past nine months, but Global Investment House (GIH) sees it rebounding, in large part because of its toeholds in foreign markets. The Kuwait investment firm initiated coverage of DSI yesterday, with a price target of Dh1.01. The stock closed yesterday at 83 fils. DSI, which was founded more than 40 years ago in Dubai, has long focused on projects in its own backyard. But it has been on a steady diversification push in the past three years. The UAE now accounts for only 60 per cent of the company's order book, and Dubai, where the property market has not fully recovered, comprises only about half of that. The company completed acquisitions in Germany, Kuwait and Qatar in the past six months and is exploring opportunities elsewhere in the MENA region.

"DSI's organic and inorganic entry into international markets, specifically in Saudi Arabia, Egypt, Libya and Syria, will have a significant bearing on the company's future growth," GIH analysts wrote. The company has about Dh500 million of cash on hand it could use on new acquisitions. Its management also avoided some of the more serious problems that befell others in the property sector by limiting exposure to residential projects. The company's total backlog as of the first quarter was about Dh4 billion. One area of concern is that more than half of that amount is accounted for by just nine clients, so any sharp downturn for one of them could have a serious effect on DSI's bottom line. In addition, DSI is not the established name in other countries as it is in the UAE and may find it difficult to compete for contracts against local firms with existing relationships. Still, DSI's strong balance sheet should provide enough of a cushion to allow it some time to make the necessary inroads.


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