Property and construction companies had a good run this month with investors buying up shares in anticipation of strong second-quarter earnings.
The optimism has been fuelled by an improvement in Dubai's tourism and retail sectors, in addition to a recovery in property prices.
While valuations are generally considered stretched, Drake & Scull International (DSI) is one stock that has missed the rally and is still considered cheap, trading at 9 times earnings compared with 15 to 18 times for its rival Arabtec Holding. "Arabtec's price is not expensive on a regional level but on a global level," said Fadi Al Said, the head of investments at ING Investment Management in Dubai."I prefer DSI over Arabtec."
DSI's activities include civil contracting, mechanical, electrical and plumbing work and water and power projects. It has turned its attention to other markets in the region after a slowdown in Dubai's property sector.
The company was awarded a US$96 million commercial development project in Riyadh in December. The builder also won a $39m construction contract for an ammonium nitrate plant in Ain Sukhna, Egypt.
Analysts forecast the region's second-biggest contractor to report a profit of Dh46.7m in the second quarter. DSI reported a net income of Dh51.2m in the same period last year. The company offered a 5 per cent dividend last year. DSI launched an initial public offering in 2008, when it raised about $322m, and went public in March 2009.
DSI's shares have risen 13.2 per cent to 85 fils this year, compared to Arabtec which has risen 94.1 per cent to Dh2.94.
"Drake & Scull is very attractive in terms of pricing and positioning," said Marwan Shurrab, the vice president at Gulfmena Investments in Dubai.
"I expect strong earnings in the second and third quarter and wouldn't be surprised if the stock trades at Dh1 by the end of the year."
