Diversification effort impresses the experts

ABU DHABI // Many investors see the interiors contractor Depa as simply another Dubai property company, with all the baggage that implies these days. That could be a costly misperception, say two regional investment houses. EFG-Hermes placed a "buy" rating on the stock yesterday, issuing a price target of US$1.18, more than double its price of 55 cents yesterday on Nasdaq Dubai.

Shuaa Capital also maintains a "buy" rating, but with a slightly lower target of $1.02. There is a catch: retail investors may need to act fast to capitalise on any gains by the shares. Foreign ownership in Depa is capped at 49 per cent and non-Emiratis already hold about 48 per cent. Depa is perhaps known for its work on the Dubai Metro and the Burj Khalifa in Dubai, but 67 per cent of the company's backlog comes from the wider region and further afield, said Sana Kapadia, an analyst at EFG-Hermes in Dubai. She forecasts that figure to rise to 81 per cent by 2013.

Ms Kapadia lauded the firm's diversification into infrastructure, hospitality and medical centres, away from a reliance on luxury developments. Among the infrastructure projects the company claims is the Ferrari World theme park on Yas Island. The rosy forecasts from analysts come just weeks after the company warned that this year would be "tough" and signalled no growth in profit when it publishes its audited results for past year on March 29.

But Roy Cherry, a property analyst at Shuaa Capital, said a minor hiccup was no cause for concern. "We expect that 2010 earnings won't be as high as 2009, because it will take time before they are able to compensate for the slow down in Dubai," Mr Cherry said. But "this is a company with significant upside", he added. In an effort to generate more liquidity, the company also plans to redenominate its shares, from American dollars to dirhams, and a 2 for 1 stock split. Both go into effect next Monday.