Realty stocks look attractive

Real estate stocks like the rest of the equities market, is witnessing a dull summer trading period, but the sector is set to see increased activity towards the year-end, said analysts.

As in the rest of the Gulf, the UAE market is passing through an extended bearish phase as a result of geo-political tensions as well as the usual summer dullness.

In a research note on the Real Estate Sector, UAE investment bank Al Mal Capital said the six property stocks are attractive valuations. The Al Mal's Dubai real estate property price index shows a year-over-year price appreciation of 40.8 per cent in the residential segment, while prices in the commercial segment appreciated by 42.7 per cent for the same period. Residential rental yields declined again in June to a median rental yield of 6.8 per cent compared to 6.9 per cent in May.

Robert McKinnon, managing director Equity Research of Al Mal Capital, told Emirates Business the real estate stocks like the other equities is seeing dull seasonal trade, but the sector is expected to see an upswing in prices towards the year-end.

"Investors who are patient should start buying the stocks in the next two months gradually as the levels are low," he said.

Al Mal Capital has rated four of the six real estate stocks (Emaar, Union Properties, Deyaar, Sorouh) as 'outperform', while two (Aldar and RAK Properties) have been rated as 'market perform'. But the report said the fundamentals of the companies are strong.

On Union Properties, McKinnon expected "EPS of Dh0.06, an improvement of roughly 15 per cent year-on-year. The contracting and MEP businesses will continue to show strong results".

The research note said Emaar Properties' bottom line results to come in roughly 10 per cent higher compared to the same period last year, excluding the expected non-cash goodwill write downs of Dh700 million for the company's operations in the United States.

On Deyaar, McKinnon said: "The valuations are attractive, but there is quite a bit of uncertainty about the company, which is needed to be sorted out. We expect EPS of Dh0.03, flat compared to the first quarter of 2008. Sales are expected to be driven by stronger results from the brokerage and management operations."

About Aldar Properties, the report said that the "wild card for the EPS estimate will probably come from recognition of the land revaluation, which is approximately 65 per cent of our estimated EPS. We expect EPS of Dh0.52, a significant improvement of 163 per cent year-on-year."

While Sorouh is expected to see EPS of Dh0.19, compared to Dh0.18 in the second quarter of 2007 and Dh0.14 in the first quarter of 2008. The note said that the net income is expected to see 11 per cent growth year-on-year and 36 per cent quarter-to-quarter.

On RAK Properties, the report said it expected EPS of Dh0.02, compared to Dh0.10 in the second quarter of 2007 and Dh0.10 in the first quarter of 2008. "We do not expect the firm to recognise any revenues from operations in the quarter," it said.