Analysts reluctant to speculate on outlook for Dubai builder Arabtec

The uncertainty surrounding Arabtec's direction amid the change in top management has forced analysts to put their target price and rating under review.

Analysts have not offered share price recommendations for Arabtec since the resignation of chief executive Hasan Ismaik. Silvia Razgova / The National

UPDATE: Arabtec issues statement Wednesday morning, says restructuring won't hurt projects

UAE equity analysts yesterday refused to predict how much damage would be done to Arabtec’s share price, after another day on which its shares closed limit-down – effectively washing their hands of the builder’s prospects.

Arabtec’s share price lost 9.83 per cent yesterday, representing a loss of Dh1.4 billion of its value, and closing at Dh3.12, down from Dh3.46. Trading was stopped at 11:52am, as UAE regulations prevent trading in a company that has lost 10 per cent of its value.

It has now lost 59 per cent of its value since its May peak of Dh7.7 a share in a period in which it has lost its chief executive and shed senior management while remaining silent on the future of its ambitions to become a global top 10 construction company.

“There was ridiculous exaggeration of the value of Arabtec on the upside, and we have no reason to think there won’t be a ridiculous exaggeration on the downside,” said Loic Pelichet of NBK Capital.

None of the analysts who provide share price recommendations for Arabtec have offered a share price target for the company since the resignation of chief executive Hasan Ismaik a week ago.

“It’s too early to say where Arabtec’s share price will end up,” said Sanyalaksna Manibhandu, the head of research at NBAD. “The range has varied from Dh1.45 to Dh7.40 per share across 12 months.”

“The uncertainty surrounding the company’s direction amid the change in top management leads us to put our target price and rating under review,” NBAD’s analysts said in a note.

NBAD said that the departure of Arabtec’s head of M&A suggested that the company was no longer ambitious to develop “into a global top 10 construction and civil engineering company by revenue by 2018”.

The firings also presented downside risks to the company’s outlook, the note said.

“In the short term, a high level of redundancies could trigger sizeable restructuring costs and lead to downward revision in forecasts.”

Mr Pelichet at NBK Capital said: “We’re formally withholding judgment on Arabtec’s share price”. NBK Capital suspended coverage of the company’s share price on May 8.

“There is a strong argument that the risk premium on Arabtec needs to be significantly higher than it was a few months ago,” Mr Pelichet said.

“The fundamentals have changed, although we don’t know quite how, how much, or in what proportion,” he said, because Arabtec has refused to provide details about alterations to its management or strategy.

“What are Arabtec’s fundamentals now? I have no idea.”

Ali El Adou, portfolio manager at The National Investor, which is a minority shareholder in Arabtec, said: “Investors are not sure if Arabtec’s top management change will entail a change in strategy.

“Until it becomes clear, it’s impossible to offer a target price.”

If the strategy remains the same but the change is only affecting staff, “this will definitely affect the company’s completion of projects, timelines and deadlines,” Mr El Adou added.

But without clear information, “it’s very difficult to assess the situation, and to come up with a target price”.

Arabtec yesterday confirmed only that a number of executives had been fired, but declined to provide details.

Mr Ismaik yesterday told Reuters that he had also resigned from the board of the Dubai interiors firm Depa to focus on his personal business interests.

Depa had previously been given contracting work by Arabtec, including providing interiors for Burj Khalifa.

UPDATE: Arabtec issues statement Wednesday morning, says restructuring won't hurt projects

Follow us on Twitter @Ind_Insights