Arabtec plummeted 20 per cent in the final 90 minutes of trading on Wednesday, bringing the stock’s dramatic three-day rally to an abrupt end.
EFG Hermes on Wednesday downgraded Arabtec to “sell” from “hold”, arguing that the construction company’s fundamentals did not justify recent big gains in its share price.
The bank argued that the rally in Arabtec shares, which had increased in value by more than 50 per cent since Sunday, was driven purely speculation that former chief executive Hasan Ismaik would continue to accumulate stock.
“With the exception of Arabtec and Drake & Scull International [DSI], stocks within our Mena contractors’ coverage have underperformed their corresponding general index,” EFG Hermes said in a research note published on Wednesday morning.
“We believe both [Arabtec and DSI] will follow suit, as the market overexcitement fades away, thus we have sell ratings on both names.”
Mr Ismaik left Arabtec abruptly in July 2014, subsequently trimming his stake in the company to 11.81 per cent. Mr Ismaik’s decision to increase his stake to 11.91 per cent this week fuelled a boom in the stock among local investors.
Arabtec appeared to be on course for another day of double-digit gains, rising 13 per cent by lunchtime.
However, following a rush of sell orders during the final 90 minutes of trading the stock ended the day down 9 per cent at Dh1.50.
“We’ve seen a crescendo of buying in the past days based on nothing more the hope that Hasan Ismaik may resume active trading in the name, rather than any fundamental change in the company,” said Sanyalak Manibhandu, the head of research at NBAD Securities in Abu Dhabi.
“As the end of the week approaches when there is no news, it just takes one or two people closing their positions and taking some profit to reverse the stampede.”
Arabtec’s reversal of fortune sparked a sell-off of other big names in Dubai. Amlak Finance was among the hardest hit, closing down 9.7 per cent at Dh1.57, while the index bellwether Emaar Properties lost 1.8 per cent at Dh5.75.
The Dubai Financial Market General Index finished the day down 1.8 per cent at 3,225.78.
Shares in the capital ended the day up 0.1 per cent at 4,379.63, thanks to gains by FGB and Aldar Properties.
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