Arkan Building 'overpriced by 32%'
This sets a price target of Dh3.70 for Arkan, while the company up 1.25 per cent at Dh4.87 yesterday.
Arkan has been one of the top performers on the Abu Dhabi Securities Market over the past 12 months, surging 427 per cent. This rapid rise since listing on the capital's bourse in January 2007 prompted its management to issue a statement saying they were not aware of any reason for Arkan's soaring share price. The jump is suprising when its latest financial figures are considered.
Its first quarter revenues were up 33 per cent this year compared to the year before, but net profits fell 55 per cent over the same period following investment losses totaling Dh30m. These woes saw the company's net margin drop from an historical quarterly average of more than 55 per cent to 16.7 per cent this time around.
"We continue to believe strongly in Arkan's strategic position in the cement industry, strong fundamentals and growth prospects," a TNI report states. "But with a 2008 price to earnings multiple of 37, Arkan looks expensive. Moreover this recent price hike is in sharp contrast to the sector trend, which has been flat and range-bound."
Arkan is certainly the top performer among the ADSM's seven listed cement companies over the past year, but Fujairah Buildings Industries and Umm Al Quwain Cement have also thrived, leaping 203 per cent and 70 per cent respectively, so it seems investors are selectively targeting the sector.
The ADSM's four other cement firms all increased by less than 20 per cent or less in the past 12 months.
Foreigners are currently barred from holding Arkan shares, but a change to the company's rules to allow non-UAE ownership would push the stock up even further, TNI believes.