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Sun 14 Mar 2010 07:04 PM

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Deutsche Bank cuts Arabtec to 'hold' from 'buy'

Bank concerned about contractor's weak backlog and ability to navigate slump.

Deutsche Bank cuts Arabtec to 'hold' from 'buy'
ARABTEC DOWNGRADE: Deutsche Bank has downgraded Dubais Arabtec to hold from buy, citing concerns about the contractors ability to navigate a property slump. (Getty Images)

Deutsche Bank downgraded Dubai's Arabtec to "hold" from "buy," citing concerns about whether the contractor can navigate a property slump at home and advance its overseas expansion plan.

Arabtec, the largest builder by market value in the UAE, has been aggressively expanding abroad to diversify its portfolio away from Dubai.

The Gulf Arab emirate has seen property prices fall 60 percent from their peaks in 2008 and billions of dollars in projects have been cancelled or put on hold in the wake of the financial crisis.

In a research note, Deutsche Bank said: "Arabtec released a weak backlog of $3.60 billion due to a contract cancellation in Dubai and a lower scope of works in Qatar and Saudi Arabia."

It added: "This raises concerns regarding whether Arabtec can manage its way out of Dubai without too much damage and successfully expand abroad."

Deutsche cut Arabtec's price target to $0.65 from $0.81 a share.

Arabtec's shares last traded 4.5 percent higher at $0.63 earlier on Sunday, outperforming Dubai's index which made its largest gains for three months, as investors bet on a Dubai World debt offer favourable to creditors.

The note said: "While uncertainties remain high regarding Dubai receivables and Aabar's potential cash injection, we believe the stock no longer offers an attractive risk/reward combination."

The project backlog fell short of the bank's $4.81 billion expectation, Deutsche said.

The $1.7 billion merger of Arabtec and Abu Dhabi's Aabar Investments will be completed in April, after the due diligence date was extended, its chief financial officer Ziad Makhzoumi told Reuters earlier in March.

The firm reported its first ever quarterly loss in March, after a charge of about $80 million for bad debts.

Shuaa Capital on Sunday maintained its "buy" rating on Arabtec and its price target of $1.32 a share, citing new contract awards in 2010 and better margins in 2009.

In a research note, the company said: "Arabtec has performed above expectations in terms of new contract awards year to date."

It added: "Arabtec has clinched $462.8 million worth of contracts so far into Q1 2010, which equates to 35 percent of our full year 2010 expectations."

Shuaa added that at its current contract win rate, Arabtec would reach $1.9 billion worth of new deals before year end, beating Shuaa's expectations by $599 million.

Earlier in March, Arabtec said it had submitted a bid to build a major property development in Azerbaijan and is looking to relaunch a $4 billion joint venture in Abu Dhabi with Greek builder Aktor, part of Ellaktor Group, which was cancelled in 2009. (Reuters)

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John 10 years ago

It will be an interesting test for all Dubai builders and developers to see if Arabtec can replicate its success in the emirate elsewhere in the world, where cheap labour and other factors might not be so readily on offer. Different labour regulations and pay scales would make a profound difference to the bottom line.