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Thu 21 May 2015 02:42 PM

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Arabtec investors need reassurance, says analyst

Taher Safieddine from Shuaa Capital reviews Arabtec's surprisingly weak Q1 results

Arabtec investors need reassurance, says analyst

Arabtec Holding’s net loss of $76.2m in the first quarter of 2015 has led to calls for managerial improvements in order to restore investor confidence.

Taher Safieddine, equity research analyst at Shuaa Capital, said Arabtec must deliver to its full operational capabilities to avoid a repeat of its weak first quarter performance.

“The Arabtec results were not expected, to be honest,” Safieddine told Construction Week on Monday (18 May, 2015).

“We were looking at consensus estimates of around $20.6m (AED76m), so the loss has surprised everyone. The stock’s value was down by 7% at DFM.”

In a statement to the Dubai bourse last week, Arabtec stated there was “noticeable pressure on the company’s ability to document its claims and variation orders, at a time when the construction sector is generally witnessing significant pressure due to economic and political circumstances in the region”.

Safieddine said the loss “is definitely not a one-off” occurrence, but a possibility Arabtec should be prepared for in the near future.

“Arabtec’s loss was related to cost variations and claims on projects, which means the company needs to revisit its contracts. This setback may carry forward into other quarters, and Arabtec needs to look at its structural standing in terms of the projects it is currently involved in,” Safieddine continued.

The engineering and contracting firm has had a tumultuous journey following successive upheavals in its management board. Mohamed Thani Murshed Al Rumaithi was appointed chairman of the company in May 2015 after Arabtec lost two CEOs, Hasan Ismaik and Khadem Al Qubaisi in quick succession since July 2014.

“Arabtec has been a decent market player since Riad Kamal founded it – one of the region’s first too – but as a publicly listed firm, it needs to work towards inspiring its investors. Aabar Investments (Arabtec’s major shareholder) is still backing Arabtec, which shows their strong commitment to the company,” Safieddine said.

“However, there are many questions for which answers are needed. When you announce projects and acquisitions, but don’t deliver in operational performance, chances are your stock will react. Investors want to see Arabtec deliver,” he added.

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