Mena property firms are trading at 62% discount

Mena property companies are currently trading at an average 62 per cent discount to their 2009 estimated net asset value, Morgan Stanley said yesterday.

It initiated coverage of Emaar Properties and 11 other companies in the region and gave six "overweight" recommendations to companies including Emaar, Aldar Properties and Sorouh Real Estate. Three companies were rated "underweight" and three "equal weight".

Morgan Stanley set a share-price estimate of Dh21.4 for Emaar. "After two years of underperformance, we think the bad news is now more than in the price. We acknowledge investors' concerns on the stock, but at current levels we think the market is now missing the high growth and lower risk of Emaar's diversified business model," the investment bank said in a report on the regional property market.

Morgan Stanley believes Emaar's earnings can grow by a two-year compounded annual growth rate of 54 per cent to 2010, with 85 per cent year-on-year growth in 2009, as sales from Burj Dubai and international operations start coming through.

"First quarter 2009 results are likely to surprise significantly, in our view, and could be a major trigger for the shares."

Aldar Properties' price estimate was set at Dh25.4, while Sorouh Real Estate was at Dh14.4. "We believe Aldar is a more appealing investment than its peer Sorouh because of its higher long-term growth potential, more diversified portfolio with exposure to the booming hospitality segment and lower financing costs and less burdensome cash flow.

"Aldar is the second most undervalued stock within our Mena peer group with an 105 per cent upside versus an average of per cent for its Mena peers."

Deyaar Development was rated "underweight", as were Union Properties and Qatar's United Development. A number of developers in Mena are new to the market, with less than five years of operating history. They therefore have a very limited track record in terms of unit deliveries.

According to Morgan Stanley, companies with a longer track record of operating throughout the selling/construction process through to unit delivery deserve a premium.

"We believe that Emaar stands out from its peers in this respect, delivering around 22,000 units in Dubai since inception, and close to delivery in some of its international markets. In contrast, Emaar Economic City has no track record in deliveries, but does, we believe, benefit from some support from its parent Emaar. t has had a number of impressive sales launches recently, with some deliveries scheduled for fourth quarter. Sorouh, also, has yet to deliver its announced projects," it said.