Emaar's share price is unlikely to rally in the medium term, despite another glowing analyst report.
Citigroup is the latest broker to offer a bullish outlook for Emaar, giving a buy recommendation and a price target of Dh21, which is 84 per cent higher than yesterday's closing price of Dh11.40. Emaar fell 1.7 per cent yesterday.
"Investors maybe sold yesterday after Burj Dubai [Emaar's flagship project] was delayed, which should increase its operating costs as well as affecting margins," said Mohammed Ali Yasin, Emirates Securities managing director.
"Unless Emaar sees substantial profit growth – say of between 15 and 20 per cent – these kind of fair values are not going to materialise," said Yasin.
Meanwhile, Citi claims the value of Emaar's land bank is not factored into the company's stock price.
"The current share price implies land price falls, no developer margin and no value in land parcels awaiting development approval," the Citigroup report states.
"Our target price gives prudent credit for these factors. More aggressive assumptions would stretch this to Dh31 and evidence to justify that valuation could emerge over the next few years as Emaar's portfolio matures," said the managing director.
But Yasin said investors were more concerned by Emaar's failure to exploit its diversification into foreign markets, which has not translated into profit growth on the balance sheet.
"These foreign operations have been a drag on its local revenues and that's been a major issue affecting investor confidence," said Yasin.
"The company can't keep saying these things will add to profit growth – it has to show this in practice.
"I haven't seen a negative report on Emaar for more than two years. They all talk about how the company's fair value is so much higher than its share price, but it doesn't matter how many reports come out, long-term investors are not going to increase their positions until Emaar's bottom line improves."
Yasin's downbeat outlook is far removed from Citi's bullish forecast. According to Citi figures, Emaar's adjusted price to earning ratio last year was 10.8, while this figure is expected to fall 10.4 this year and into single digits in 2009 and 2010.
"In terms of operational expertise it is relatively mature. However, Emaar is a young company in terms of realising the value of its very large portfolio of development projects," Citi says.
"There is a lot of growth left. The current share price does not recognise the value of that growth opportunity and we argue that catalysts will emerge over the next year to close the value gap.
"The equity market has focused on year-on-year earnings growth in the absence of any consensus on how to value Emaar's development portfolio," it adds.
Emaar has been unlucky with events beyond its control such as the US credit crisis, while the postponement of its Indian IPO has not helped investor sentiment.
The company's shares have fallen 23.5 per cent this year to be among the worst performers on the Dubai Financial Market.