Drake & Scull shows strugglers way to go

The Dubai-listed contracting company is bucking the trend in a market where virtually all businesses related to the construction sector are struggling.

The Dubai-listed contracting company Drake & Scull (DSI) is bucking the trend in a market where virtually all businesses related to the construction sector are struggling. The company was awarded two new contracts with a combined value of Dh240 million this week, solidifying analysts' convictions it is well placed to grow within its category of electrical, mechanical and plumbing (MEP) works.

"It's a bit of a contrarian. Most construction-related businesses have shed scale, while DSI has built scale in adverse market conditions. It just shows how well the firm is placed within its niche," said Saud Masud, the head of research at the Swiss bank UBS. DSI on Monday informed the market that it had won contracts for a government building and an apartment building on Saadiyat Island, which brings the total value of contracts awarded to it this year to Dh1.4 billion.

"Aside from this being a marked accomplishment for the company, we expect that this will also aid in boosting our returns towards the end of the financial year," Khaldoun Tabari, the chief executive, said in a statement on the Dubai Financial Market website. Mr Masud said DSI's entry into high-growth markets such as Abu Dhabi marked a significant move and complemented the company's aggressive expansion through acquisitions.

DSI in April fully acquired its Qatar unit for Dh97.3m. It is the company's third acquisition since last November, when it paid Dh145m for an 82 per cent stake in Passavant-Roediger, a water unit of Germany's Bilfinger Berger, and increased its stake in Kuwait's Electrical Contracting to 75 per cent in a Dh80m deal a month later. Analysts believe the stock is trading at a significant discount, considering the company's fundamental strength and low-risk profile.

In a recent note to investors, analysts at Prime Securities recommended a "strong buy" for DSI shares and suggested a price target of Dh1.15. The analysts noted that unlike other companies in its sector, DSI had no exposure to Dubai World-related entities. DSI shares yesterday closed 0.12 per cent lower at Dh0.82. They are up close to 5 per cent since the beginning of this week. [e-mail]