Best is yet to come for Drake & Scull

Company reports net profit of Dh44m for second quarter

Its second-quarter profits were disappointing but the construction company Drake & Scull International (DSI) remains on a solid foundation. DSI reported a net profit of Dh44 million for the second quarter, slightly below analyst estimates, due to continued weakness in the construction sector. "While most expected construction activity to pick up significantly during the quarter, progress remained somewhat subdued," Roy Cherry, an analyst with Shuaa Capital, said yesterday.

Mr Cherry said he expected construction to gain momentum in the second half of the year and allow DSI to capitalise on its ample backlog. He is keeping his "buy" recommendation on the company with a price target of Dh1.12 a share, implying 36 per cent of upside potential from its close yesterday at 82 fils. DSI has added Dh2.6 billion in contracts so far this year, a performance Mr Cherry said was "surpassing our full-year expectations of Dh2.4bn with five months still to go".

The company said last week it expected to expand its total backlog to Dh6bn by the end of the year. The company's projects are spread around Dubai, Abu Dhabi, Saudi Arabia and Qatar. In the past few weeks, DSI managed to land Dh675m in awards for Saudi Arabian engineering services and plumbing works at a couple of projects in Riyadh. DSI also plans to acquire two Saudi Arabian companies in the second half of the year for a total of Dh700m. If those deals close quickly, it could prove to be a catalyst for the stock, Mr Cherry said.

As of the end of the first half, DSI had a total cash position of Dh1.1bn and a total debt of Dh601m. The company has put itself on solid footing with a healthy balance sheet and a full pipeline of projects. It just needs the global economy to speed up so it can start producing stronger profits. As more buildings start to go up around the Middle East, so should DSI shares. [e-mail]