Rising stock

Burj Dubai builder Arabtec made headlines around the world last year when 30,000 workers went on strike over pay, bringing building sites across the emirate to a standstill.

So why has the company founded by Riad Kamal become one of the best performing Arabian Gulf stocks of the last year?

Riad Kamal has just got off a flight from St Petersburg and is wearing the broad smile of a cat who's got the cream - in the form of a US$2.7bn contract to build a skyscraper for Russian energy giant Gazprom.

It is the largest project ever awarded to Arabtec, the UAE contractor building the world's tallest tower that has become the darling of the local stock market with a share price that has risen a staggering 260% in the last year - 30% of that in the last month alone.

Hard to imagine that this is the same company that suffered the biggest worker walk-out in the history of Dubai last November when around 30,000 of its employees downed tools to protest over their pay, some of them refusing to return to work for three weeks.

The strike made headlines around the world and sent Arabtec stock diving.

But it was only a temporary retreat and less than six months later, the UAE's only publicly traded construction company continues to beat analyst profit expectations and has bagged the biggest skyscraper contract to have been awarded anywhere in the world so far this year.

Kamal has come a long way since working as a site engineer on a steel plant in the northern British city of Scunthorpe back in the swinging 60s, after graduating from Imperial College London in 1965.

Today the company he started 34 years ago is worth more than US$2.7bn. Its stock is covered by analysts from Morgan Stanley to Goldman Sachs, and it has gained worldwide exposure from its Burj Dubai project.

Kamal got his big break back in 1974 when he convinced a group of seven investors to let him manage the construction of what was then the biggest and tallest building project in Dubai - at just 17 storeys and worth only US$6.8m, it seems hard to believe that he is talking about the same emirate.

The project was a success and Arabtec was born with a start-up capital of about US$545,000.

It led to other building jobs in Dubai, Sharjah, Al Ain and Abu Dhabi throughout the early 1980s. Kamal bided his time until 1988 when Dubai's building industry was at its lowest ebb.

He offered to buy the shares of his co-investors and they were happy to sell. He doesn't disclose what he paid his seven erstwhile partners for their stakes, but it seems clear that it was at a substantial discount to the US$385m that a one-seventh stake in Arabtec would be worth today.

"I'd hate to think what they think about it now," he says with a chuckle.

Kamal claims not to be interested in the movement of the company's stock.

"I don't spend too much time following the share price. We chase the jobs and our company is in a growth phase so it is only natural that our results are going to be better, and that will obviously be reflected on the share value," he says.

His nonchalance is unconvincing though. With 10% of Arabtec stock, his personal shares are worth in excess of US$270m.

The Gazprom contract was a particularly spectacular rabbit to pull out of the hat for Arabtec, which was already riding high from a Morgan Stanley note in early April that said the company's fair value was AED18.87 when it was trading at just AED11.62.

It was a massive upgrade for the stock from a big-name bank and it triggered an investor feeding frenzy on Arabtec shares.

The stock upgrade was in response to Arabtec's acquisition of Target Engineering, a relatively small Abu Dhabi-based contractor which gave the company access to the potentially lucrative oil and gas sector in addition to its mainstream building work.

"Arabtec's revenue growth and net profit margin have exceeded expectations. Essentially investors and the market see that the company today is well-managed, operating in a growing construction market with demand for contractor capacity exceeding available capacity," says Shuaa Capital analyst Roy Cherry.

"They are betting on the company's ability to expand capacity, organically and inorganically.

The Russian contract will help Arabtec do just that - opening up a vast and potentially lucrative new market for the company.

The company beat Russian and European rivals to win the contract to build a 400-metre tower and five other buildings that will form the ‘Okhta Centre' in the city of St Petersburg for Gazprom Neft, the oil unit of the Russian national gas company as well as the City of St Petersburg.

To win a project like this in competitive tender and on foreign turf was a coup for Arabtec, particularly as the value of this single project is the equivalent of the company's entire market capitalisation.

But the award also represents a big risk for the company in a market that is notoriously difficult for outsiders. Limitless, the Dubai-based government-owned developer was forced to abandon a planned US$11bn project in Moscow last year without disclosing the reasons behind its withdrawal.