ING Bank says Depa is undervalued by 28%

Interiors contractor Depa is 28 per cent undervalued according to the latest broker research. The Dutch lender ING Bank has offered a 12 month price target of $1.99 for Depa, which compares favourably with Depa's closing price yesterday of $1.56.

This upbeat outlook is based on the Dubai-based firm's sound fundamentals, with ING comparing Depa to construction giant Arabtec. The latter has seen its share price almost triple over the past year. Both companies have the same fundamentals and a big backlog of orders, ING claims.

"Given the level of backlog and pre-backlog, we feel confident that Depa will achieve its guidance of 40 per cent organic top-line CAGR (compound annual growth rate) in the next two-three years," an ING report said.

"Triggers to share price performance will mainly be the transformation of the company's pre-backlog into firm orders. We believe this will start happening at an accelerated rate in the second half of 2008."

Depa, which listed on the Dubai International Finance Exchange in April, initially struggled and sunk below its IPO price of $1.55 (Dh5.68), but has since recovered.

Depa is the largest interiors firm in what ING describes as a fragmented market, which enables it to bid for contracts other firms cannot execute.

"Depa is about to undertake a major international expansion, as a large part of the pre-backlog is outside the UAE. Margins outside the UAE are expected to be higher than domestic ones," the report states.

Depa is dependent on the UAE's construction boom. Depa's backlog has increased from Dh1.6bn at the end of 2007 to Dh2.2bn today. This excludes its pre-backlog – letters of intent for contracts that ING said are rarely unfulfilled – so in reality the company's order book is much larger than it initially appears.

The company is targeting 10 acquisitions, which will be largely funded by its $935m IPO, but such a rapid expansion could leave it overstretched. Depa is active in 16 countries, although Dubai accounted for 81 per cent of sales last year, with only Morocco and Qatar providing significant revenues.

However, its aggressive acquisition policy is expected to see Dubai's share of earnings fall to 40 per cent by 2010, therefore reducing Depa's exposure to a sudden downturn in the local construction market.

"Depa is exposed to the hospitality business, as hotel interiors represented 80 per cent of the firm's sales in 2007, and hotels are expected to remain by far the main contributor to activity in the medium term," it said. ING offered a downbeat assessment of the DIFX, saying the fledging bourse has a 'fairly poor' record for local companies.

DP World unchanged

DP World closed unchanged despite a huge increase in volumes.

The ports operator saw 9.25 million shares change hands yesterday as it traded in a three per cent range before closing flat on $0.95.

Yesterday's volume was more than 10 times that of Thursday's.

The market is open on Fridays to coincide with global markets, but it typically sees little trading. DP World shares have fallen 22 per cent this year.

Meanwhile, Depa was also unchanged yesterday at $1.56 after seeing just $889 of shares sold in the company's single trade yesterday.