Morgan Stanley increases Arabtec price target by 60%

In the firm's recent report, "Arabtec Holdings - 'Target' Acquisition: Solidifies the Abu Dhabi Argument", analyst Mai Attia maintains the firm's "Overweight" recommendation, attributing the higher price target to three main factors.

"The acquisition of 60% of Target, the Abu Dhabi-based contractor is a good way to solidify its market position within the Emirate.

Target had a backlog of Dhs2.5bn (as of Dec 07), primarily focused in Abu Dhabi and Dubai, which adds considerable weight to the Arabtec story," said Ms Attia.

The report highlights Arabtec's recently reported strong results, with net income of Dhs535.4m coming in at 73% above consensus estimates.

The company has also added an additional Dhs2.1bn to its backlog year-to-date, with total backlog now at Dhs17bn, which exceeds Morgan Stanley's previous estimate of Dhs16.3bn.

"The main value driver for Arabtec is the favourable operating market conditions, especially in the UAE, that will likely have an impact on growth and profitability. The company's international expansion strategy and its ability to leverage on the acquisition of Target, especially in expanding its presence in Abu Dhabi, are also key value drivers".

According to the report, Arabtec has surprised with its penetration of the Abu Dhabi market.

The recent acquisition of Target has positively altered Morgan Stanley's outlook on its positioning in the lucrative Abu Dhabi market.

The firm raises its estimates for work in Abu Dhabi by Arabtec and Target to represent 15% of total backlog in 2008 and 25% in 2012.

"Implied 2008 estimated Price to Earnings ratio (P/E) is 13.9. This attractively compares with our emerging markets peer group, which trades at an average 2008 estimated P/E of 20.3," says Ms Attia.