Drake & Scull International (DSI) announced a 10 per cent share buyback yesterday.
The share buyback will cost the company, which is listed on the Dubai Financial Market, about Dh210 million at yesterday's closing price of Dh0.92.
The company did not give a date for the buyback.
Drake & Scull’s share price rose to Dh1.97 this year before plummeting back to its current level, down 36.1 per cent year-to-date.
The company has lost Dh1.6bn of value since its peak on July 16, when it had a market capitalisation of Dh3.7 billion. The company’s market capitalisation stood at Dh2.1 billion as of the end of trading yesterday.
"Along with the broader GCC construction sector, Drake & Scull has been heavily impacted by market sentiment," said Mohammad Kamal, the executive director of equity Research at Arqaam Capital.
“Contractors in Mena, as a sector, have been trading below the historical enterprise-value-to-backlog ratio for contractors.”
“Contractors with exposure to key construction markets in Mena have been impacted negatively by expectations of a new, long term price environment for oil, and consequently lower government spending on infrastructure”.
“A significant minority of Drake & Scull’s business comes out of Saudi Arabia, and the remainder includes exposure to other oil exporting-markets,” Mr Kamal said.
“The market is extremely conservative in its valuation of Mena construction stocks at current”.
The usual purpose of a share buyback is to support a company’s share price and for management to demonstrate conviction in the value of its business, said Mr Kamal.
Drake & Scull said, in a statement: “DSI management believe in the company, and believe that there is value in the share.
“The shares will be bought as per SCA [Securities and Commodities Authority] regulations, and utilised in multiple ways, which also includes an employee share option plan,” the statement added.
abouyamourn@thenational.ae
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