Arabtec jumps 3.9% on merger hopes

Shares in Dubai builder Arabtec jumped to a 15-month high on Wednesday after its chief executive said it was considering a merger with the largest contractors in Saudi Arabia and Kuwait to create a pan-Gulf construction firm.

"We are now looking for a merger with two of the biggest construction companies in the Gulf, one in Saudi Arabia and the other in Kuwait," Hasan Abdullah Ismaik told CNBC's Arabic news channel in an interview, without naming either of the companies.

It was unclear if serious negotiations were actually going on, and bankers in the region said any cross-border merger would face major technical, regulatory and possibly political obstacles. But shares in Arabtec rose 3.9 per cent to Dh2.65 in heavy trade.

Other factors also buoyed Arabtec. The firm, which raised over $650 million in a rights issue in July, swung to a second-quarter profit and beat analysts' forecasts, helped by growth in its key markets and expense reductions.

It severely lagged the Dubai stock market in recent months because of worries about dilution from the rights issue, but has picked up since the new shares were issued.

"You might be sitting at an inflection point of opinion change on Arabtec - these valuations are playing up for growth that will come next year and later," said Amer Khan, fund manager at Shuaa Asset Management.

"From a retail (investor) perspective, they're looking for laggards and Arabtec is something that has room to pick up."

He added, "Construction is going to continue to be a tough business to be in. Margins are pressured and competition is extremely intense. But with economic conditions improving in the UAE, there might be better clarity on project growth compared to a year or two ago."

The firm won a series of contracts this year, especially in oil-rich Abu Dhabi where its top shareholder, state investment firm Aabar, is based.

Arqaam Capital upgraded Arabtec on Tuesday to a 'buy' recommendation with a price target of Dh3.40. Other analysts have mixed outlooks; EFG-Hermes has a 'sell' recommendation with a Dh1.90 target, while Naeem Holding has a 'hold' at Dh2.37, Thomson Reuters data shows.

Arabtec is up 42.5 per cent year-to-date, which compares with blue chip Emaar Properties' 65.6 per cent gain over the same period.

Dubai's market index climbed 0.2 per cent to close at 2,670 points, less than 10 points away from Aug. 6's near five-year high.

SPECULATION

Speculative trading dominated most Gulf markets because of a lack of fresh corporate news.

Abu Dhabi's measure climbed 0.5 per cent, extending 2013 gains to 49 per cent. Trading volume jumped to a two-week high.

In Qatar, Al Khaliji Bank surged 5.4 per cent to a 29-month high, seeing its biggest daily volume in more than a year. The stock, up 13.2 per cent year-to-date, has underperformed the wider market's 20.4 per cent gain.

"Khaliji is lagging the banking sector and the index as a whole," said Ahmed Shehada, head of trading at Qatar National Bank Financial Services.

"We're expecting the bank to grow its loan book by a minimum of 20 per cent this year. Since it's a small bank, any growth on their balance sheet will reflect positively."

The lender posted a first-half net profit of 290.5 million riyals ($79.77 million), up 10.9 per cent from the year-earlier period, according to a bourse statement.

Doha's main market index rose 0.2 per cent to a fresh 59-month high.

"Although the market is due for a correction (because of technical factors), it will likely continue its bull run," said Shehada, adding that momentum and strong retail buying because of a shift in asset allocations from the real estate sector would back the equities rally.

WEDNESDAY'S HIGHLIGHTS

EGYPT: The index ticked up 0.05 per cent to 5,390 points.

DUBAI: The index gained 0.2 per cent to 2,670 points.

ABU DHABI: The index climbed 0.5 per cent to 3,921 points.

QATAR: The index advanced 0.2 per cent to 10,065 points.

SAUDI ARABIA: The index gained 0.4 per cent to 8,215 points.

KUWAIT: The index slipped 0.3 per cent to 8,102 points.

OMAN: The index retreated 0.3 per cent to 6,904 points.

BAHRAIN: The index declined 0.2 per cent to 1,200 points.

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