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Sat 3 Jul 2010 04:00 AM

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The GCC stock stars

The markets have decided who the top performers are. Ben Roberts profiles the biggest construction industry stock market winners of the year so far.

The GCC stock stars

The markets have decided who the top performers are. Ben Roberts profiles the biggest construction industry stock market winners of the year so far.

Construction Week has analysed the share performance of all construction and materials companies across the GCC's stock markets from the beginning of this year to 22nd June. It set a benchmark of 5% for both the increase in stock market value and total return for the year to date.

Twelve companies beat this benchmark, with results showing that Kuwait and Saudi materials manufacturers have provided the best market value increase and total returns so far this year.

Kuwait Portland Cement Company has seen the biggest increase, up 54.49% on the benchmark (59.49% total rise so far this year on the Kuwait Stock Exchange), with a total return of KD70.57.

And Kuwait companies have surprisingly dominated the benchmark-beaters, with Combined Group Contracting, Kuwait Company for Process Plant Construction & Contracting Company and United Projects Group outperforming by 39.48%, 33.64% and 13.95% respectively. These companies produced total stock returns for the year of KD49.75, KD40.29 and KD30.52.

Saudi Arabia's Saudi Vitrified Clay Pipes Company has also been a star performer, beating the CW benchmark by 50.95%, with total returns of SR63.01. Other companies from the Kingdom of note for the first half of this year include the ready mix giant Saudi Cement Company (10.57% up on the benchmark), Makkah Construction & Development Company (+6.90%) and Zamil Industrial Industries Company (+4.26%).

Stock price and total returns for the year do not tell the whole picture if you are an investor of course. Stock pickers will often look at the earnings per share (EPS) of a company and then the price/earnings (p/e) ratio.

Based on these variables of dividend rates and outstanding shares, a company's stock market value increase and its P/E ratio may be very different to each other when compared to peers.

This has played out in CW's research. Kuwait Portland Cement Company may have outstripped the CW benchmark by almost 55%, but its P/E ratio sits at 6.32, a long way below the 23.3 of Makkah Construction & Development Company and the 22.32 of Saudi Vitrified.

Different investors will focus on a company's dividends, p/e ratio or share value depending on their long-term intentions for the shares - indeed, the different figures may help determine those intentions. A long term investor in a company - along with income funds - may study the dividends they will receive as stock holders, whereas those with a shorter term view may look at the capital gains to be pocketed from an increase in share price.

It also must be acknowledged how differently company finances are structured across the construction sector. If a contractor takes on a project that will take many years, it may subsequently take a few quarters for it to appear on its balance sheet - even if their share price may rise on the initial news.

Ziad Makhzoumi, CFO of Arabtec, recently highlighted this delay in an interview with CW. "In construction, you're not taking on a four-week project, you're taking on a three or four-year project, and there is usually a lag time between signing a contract and seeing the revenue on your balance sheet," he said.

He pointed out that Arabtec's net profits for the first quarter of 2010 were down 17% compared to the same period in 2009, but that the net margin had increased as a result of operating in new markets.

Materials manufacturers can see similar delays if they have expanded their capacity, though also the opening of a new plant or factory can boost share price and be factored into the forecasted revenues. Gulf Cement Company, for example, will in the next three years see its 5,000-ton capacity cement plant come on line. Nishit Lakhotia, an analyst at Securities & Investment Company in Muscat, also earmarks an expected increase in capacity for Al Madinah, to add further to the competition for this commodity.

Of course, many of the companies in the region are private entities. But all things considered, CW has found some fascinating trends in the market. These trends highlight factors that have helped some companies to clear the 5% benchmark easily in the first half of the year. it may also point to those that have great expectations for the next six months.

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