Tabreed surge leads to more speculation

12/03/2012 11:42 AST

A 221 per cent surge in Tabreed's stock price over the past two months has raised fears that the utilities firm is alarmingly overpriced.

Recent investor interest has left most analysts scratching their heads as Tabreed, also known as National Central Cooling Company, jumped from 49 fils at the start of January to a peak of Dh2.13 last week.

"Tabreed's recent price behaviour and demand pattern could be consistent with leakage of a potential entry of a strategic investor or of an entity vying for controlling interest," said Talal Touqan, the head of equity research at Al Ramz Securities in Abu Dhabi.

Mr Touqan said Tabreed's rally was overstated and the current market price was not justified, with shares currently trading at a premium of 46 per cent.

Several other publicly listed companies, such as Arabtec Holding, have experienced similar surges in their stock prices.

The Dubai construction company gained 128 per cent in the first two months of the year amid speculation that a strategic investor was accumulating shares in the company. Aabar Investments, an Abu Dhabi sovereign investment company with stakes in Daimler, Virgin Galactic and UniCredit, last Tuesday emerged as the latest investor in the construction giant, with a 5.28 per cent stake.

Mr Touqan initiated coverage on Tabreed with an "underweight" recommendation and a fair value price of 96 fils a share.

Tabreed, which was hurt during the Dubai property downturn in 2008, completed its recapitalisation programme early last year with the help of Mubadala Development. Mubadala, a strategic investment company owned by the Abu Dhabi Government, offered the long-term capital which included Dh1.7 billion in mandatory convertible bonds that mature in March 2019, as well as a subordinated loan facility of up to Dh1.4bn, which includes a payment in kind component that converts into shares upon maturity.

Given these conditions, current shares outstanding could increase by as much as five times to 3.5 billion shares in 2019.

"With the number of shares astronomically multiplied, earnings as well as book value would be diluted," Mr Touqan said.

While most stocks rose on the Dubai Financial Market yesterday, Tabreed fell as much as 9 per cent during the trading session but closed 3.7 per cent higher to Dh1.68.

The National
National Central Cooling Co. - TABREED
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