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Arabtec loses appeal for analysts on price

Arabtec's shares look overvalued in the wake of the Dubai-based construction firm's latest surprise loss, say analysts.

Arabtec Holding's prospects may be bright but the UAE's biggest builder is rapidly losing favour with analysts.

The construction firm based in Dubai surprised the market with a loss of Dh11.6 million during the second quarter, which it attributed to the costs of moving equipment and staff as it geared up for projects in Saudi Arabia.

Despite the loss, Arabtec's half-year results represent a 30.4 per cent improvement on profits recorded during the same period last year.

However, many analysts are convinced the stock - up 81.6 per cent since the start of the year - is heavily overvalued.

More than three quarters of analysts polled by Bloomberg rate the stock a sell.

Menacorp initiated coverage of Arabtec on Monday with a sell rating, putting a target price of Dh1.88 on the stock.

The company's shares fell 2.1 per cent in trading yesterday to Dh2.75 each.

"In light of Arabtec's current stock price, we think that the positive outlook has been overpriced," analysts from the brokerage said in a research note, which pointed to the company's difficulties in securing payment for contracts in the wake of Dubai's construction downturn and the Arab Spring.

"Arabtec also faces difficulties in expanding regionally because of a relatively strained cash position and lack of receivables recovery from developers due to the global macro-economic slowdown," the report added.

The stock's current value is largely attributable to Arabtec's 128.3 per cent rise between January and February, when it was rumoured a large investor was quietly accumulating shares in the company.

That buyer was later revealed to be Aabar Investments, which holds a 21.5 per cent stake in the company.

NBK Capital, which also rates Arabtec with a sell rating, said the effect of that acquisition flattered the company's relatively strong operating position.

"We remain convinced that Arabtec is overvalued, with the share price still reflecting unwarranted speculation linked to main shareholder Aabar, rather than the [admittedly strong] company fundamentals," the bank said in a research report.

NBK Capital is mostly concerned by declining margins, particularly at its Al Hasa contract to build 5,000 villas in Saudi Arabia, which represented 36.6 per cent of the company's backlog at the end of the first quarter.

NBK Capital said it expected margins to recover as the company moved from excavation to construction of the project.

ghunter@thenational.ae

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