The downtrodden UAE construction industry is starting to capture the attention of investors.
After a "dreadful third quarter", Deutsche Bank expects the sector to pick up in the weeks ahead, based on seasonal increases in business.
"Overall, we expect the Mena contractors under our coverage to post an 18 per cent quarter-on-quarter increase in earnings," the bank's analysts Nabil Ahmed and Athmane Benzerroug wrote in a report.
For its top pick Deutsche Bank singled out Drake & Scull International (DSI), which yesterday announced a 2 billion Saudi riyal deal with Saudi Aramco to help build the King Abdullah Petroleum Studies and Research Center project in Riyadh.
Last year DSI won deals worth Dh1.2bn in Saudi Arabia, and the company expects further business from its largest market in the region. Last week DSI said it was bidding on Dh4bn worth of projects in Qatar. Khaldoun Tabari, the DSI chief executive, said at the time the company was also planning to expand through acquisitions.
Deutsche Bank predicts Drake & Scull will post a 15 per cent increase in its backlog in the coming quarter, and an estimated 7 per cent for Arabtec Holding, the largest construction company in the UAE. Arabtec secured more than Dh2.6bn in contracts last quarter, its best performance since the second quarter of 2009, Deutsche Bank estimates.
Last week Alembic HC Securities singled out Depa, the Dubai interior contractor, for an upgrade. Its analyst Majed Azzam cited the company's diversification away from Dubai, low exposure to payment delays and ability to cover many sectors as among the company's positive attributes.
Depa is 36 per cent undervalued, according to Alembic but it downgraded DSI from "overweight" to "neutral", saying "fierce competition and tight liquidity raise concerns about margin compression and working capital deterioration". The company maintained a "neutral" rating on Arabtec.
DSI shares were trading at Dh1.09 at yesterday's close, up from Dh1.08 on Thursday, but still off its recent high of Dh1.13 achieved last month.
Meanwhile, Arabtec closed at Dh1.73 yesterday, up from Dh1.70 but still below its recent high of Dh2.30, which it hit in October.