Arabtec Holding's prospects may be bright but the UAE's biggest builder is rapidly losing favour with analysts.
The construction firm based in Dubai surprised the market with a loss of Dh11.6 million during the second quarter, which it attributed to the costs of moving equipment and staff as it geared up for projects in Saudi Arabia.
Despite the loss, Arabtec's half-year results represent a 30.4 per cent improvement on profits recorded during the same period last year.
However, many analysts are convinced the stock - up 81.6 per cent since the start of the year - is heavily overvalued.
More than three quarters of analysts polled by Bloomberg rate the stock a sell.
Menacorp initiated coverage of Arabtec on Monday with a sell rating, putting a target price of Dh1.88 on the stock.
The company's shares fell 2.1 per cent in trading yesterday to Dh2.75 each.
"In light of Arabtec's current stock price, we think that the positive outlook has been overpriced," analysts from the brokerage said in a research note, which pointed to the company's difficulties in securing payment for contracts in the wake of Dubai's construction downturn and the Arab Spring.
"Arabtec also faces difficulties in expanding regionally because of a relatively strained cash position and lack of receivables recovery from developers due to the global macro-economic slowdown," the report added.
The stock's current value is largely attributable to Arabtec's 128.3 per cent rise between January and February, when it was rumoured a large investor was quietly accumulating shares in the company.
That buyer was later revealed to be Aabar Investments, which holds a 21.5 per cent stake in the company.
NBK Capital, which also rates Arabtec with a sell rating, said the effect of that acquisition flattered the company's relatively strong operating position.
"We remain convinced that Arabtec is overvalued, with the share price still reflecting unwarranted speculation linked to main shareholder Aabar, rather than the [admittedly strong] company fundamentals," the bank said in a research report.
NBK Capital is mostly concerned by declining margins, particularly at its Al Hasa contract to build 5,000 villas in Saudi Arabia, which represented 36.6 per cent of the company's backlog at the end of the first quarter.
NBK Capital said it expected margins to recover as the company moved from excavation to construction of the project.
ghunter@thenational.ae
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2025 Fifa Club World Cup groups
Group A: Palmeiras, Porto, Al Ahly, Inter Miami.
Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.
Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.
Group D: Flamengo, ES Tunis, Chelsea, (Leon banned).
Group E: River Plate, Urawa, Monterrey, Inter Milan.
Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.
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Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
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4.35pm: Tilal Al Khalediah
5.10pm: Continous
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