Arabtec Holding -Equity Report -24-07-2012

Stock factors in positive reversal of growth trend; macro recovery remains the key We initiate coverage on Arabtec with a Neutral stance as the stock appears to be fairly valued at current levels. We believe the stock is currently balancing the cyclical risk of recent downturn and demand optimism from infrastructure sector driven by regional government spending. After revenue decline of c20% over last three years, we expect revenue to retrace higher growth in 2012e (c9% YoY) and anticipate a trough in the cycle to have been reached. On account of current order book development, the revenue is likely to grow at a CAGR of c9% through 2013e. However, any global or regional factors denting the macro recovery remains a risk to our projections.

Initiate coverage on Arabtec with Neutral rating and potential downside of c2% We expect the company to deliver a revenue growth of c9% & gross margins to stay within a range of c14%-16% over the next three years. Based on blended approach using DCF, EV/backlog, EV/ EBITDA & PE valuation methodology, we have arrived at a target price of cAED 2.90 and have a Neutral rating on the stock.