Tabreed's growth heats up - but so do risks, says TNI

But the Abu Dhabi Investment Bank's 2008 analysis is quick to add that the 16.9% growth from the water cooling company "is not necessarily sustainable."

The Report published yesterday points to slowing momentum in Tabreed's district cooling business, which was below forecasted growth in 2007 as an indication of decelerating overall growth. It also highlights landmark 2007 deals with property groups Aldar and Sorouh as presenting potential risks in delayed revenue and in stretching an already leveraged balance sheet. However the report does acknowledge the opportunities offered from these new partnerships.

On reviewing increasing competition in the sector from young companies such as Palm Cooling, TNI's update authored by analysts Awan and Davidson recognizes Tabreed's position as a market leader, but suggests the company's market share is increasingly under threat.

Another "substantial risk" to growth identified by Awan and Davidson was the drop in capital expenditure over the year from a planned Dhs2.4bn, to an actual Dhs1.1bn. "This would limit capacity growth in the immediate future however we do expect Tabreed to improve and sustain its operating margins" declares the report. This margin expansion is expected to be achieved through better pricing, controlled staff costs and increasing business capacity.

TNI updated its target to Dhs3.23 and rated Tabreed as Fairly Priced. The bank first initiated coverage in 2007 with an Underpriced rating. "Our new rating is underpinned by higher than expected growth in smaller segments and downgrading of estimates for the district cooling segment," the report concluded.