Ziad Makhzoumi interview: 'The reason is obvious'

Arabtec Holding’s shares have risen by 71 percent in the past six weeks
By Claire Ferris-Lay
Sat 11 Feb 2012 09:27 PM

If there is a recession going on, someone forgot to tell Arabtec Holding. Since the start of the year, the Dubai-based construction giant has seen its shares increase a staggering 71 percent. Even by last Wednesday, after a small slump, the firm was still trading at 67 percent above its shares on 1 January. Not bad for six weeks work. And with no major announcements, it appears nobody has a clue why the price is shooting up.

Except that is for Arabtec’s chief financial officer, Ziad Makhzoumi. “The experts they must know why it’s going up. The reason is very obvious, there is a big volume of trading on a daily basis and if there is demand then the price will go up naturally,” he tells Arabian Business, adding: “If you look at the daily volume, today [Wednesday] we are down to eight million shares but yesterday [Tuesday] was close to 70, the day before was close to 60 so when there is demand the price will go up naturally.”

So why such demand? The rumour mill has been working overtime, with intense speculation that Arabtec, the company that built the world’s tallest building, the Burj Khalifa, is in line to build the new Midfield Terminal Complex at Abu Dhabi International Airport. Part of the airport’s $6.8bn expansion plan, it is a mega-project, with the terminal’s central area equivalent to the size of three football pitches.

Makhzoumi, widely seen as one the top financial gurus in the region, is keeping his cards close to his chest. “It is a big bid but we haven’t heard from it. We only announce projects when we get them, I cannot comment on the future and the potential as that will mess up the markets.

“We are bidding for a few projects, I don’t know if this is the only reason why the share price is going up because we declared that we are one of the bidders but this is public knowledge… But the volume of trading is high and that’s why the price is up,” he says.

He adds: “We bid for many projects, four years ago the company declined bidding for projects because it couldn’t cope. Then things stopped in early 2009 and now it seems that the market is moving.

“We usually go in at very attractive prices on all the projects but there are others who probably either have a technical advantage or they go in at a lower price so at the end of the day it’s the client who decides who it wants.

“Am I confident that we are winning more projects — well I hope that we do. This is why we have been successfully winning projects but I can’t tell you that we will win all of the projects that we are bidding for in every market.”

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There’s no doubt it has been a decent start to the year for Arabtec. On 4 January the firm received a letter of award for the Dubai International Airport Expansion (Phase 3), worth AED561m ($152m). Several weeks later the company’s subsidiary, Target Engineering, won three projects in Abu Dhabi, worth AED256m ($69m).

Arabtec has also won new work in Kuwait, Egypt and Bahrain. Makhzoumi adds that “at the moment we are concentrating aggressively on Saudi because this is the biggest market in the GCC.

“There is some work that is coming so we are winning, the market is moving again but definitely not of the same size and magnitude that we had a few years ago.”

Arabtec’s third-quarter profit for 2011 increased to $10.65m from $1.85m a year earlier. But the company may report a 60 percent drop in fourth-quarter profit to $5.99m, according to the median estimate of three analysts on Bloomberg.

Not that the analysts covering the stock are shouting too loudly about this. Of the seventeen analysts following Arabtec on Bloomberg, eleven had last year put “hold” on the stock, two had “buy” and four had “sell.”

In fact, thirteen of the analysts had actually set price targets for Arabtec at below AED1.50.  Compare that to last Wednesday’s price of AED2.88 — way above the twelve month low seen last March when shares dropped to just AED0.912.

For once, the analysts are lost for words. As Ibrahim Masood, senior investment officer at Mashreq Bank told Reuters: “I must have asked 50 people what is going on with Arabtec and they all say they’re clueless — a lot of volume has gone through Arabtec and it has gone up in a straight line.”

That straight line means that Arabtec today has a market value of AED3.9bn ($1.06bn). Its position as one of the Arab world’s top contractors looks healthier than ever, and the good times are back for the firm founded by Riad Kamal in 1979.

But if the company’s directors are enjoying the sudden turn in fortunes, none of them will be personally netting any huge fortunes. Not a single director of Arabtec holds more than five percent of the company’s stock.

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