Why are investors shunning Emaar Properties?

With over 1,000 units sold, and 700 registrations for the release of the next 400 villas, it is quite bizarre that Emaar Properties' shares stand at the same price as they did five years ago, one week after the initial public offering.

Admittedly the recent turnover in the shares has been high, and the focus of much attention in the UAE stock market. But the valuation that investors apply is a mystery, and based on a historic and not current view of cash flow and profitability.

Even the innovative buyback programme launched earlier this year has failed to shift the share price, although logically by reducing the number of shares in issue, it ought to have resulted in an at least proportionate rise in share price.

Ask any UAE stock broker and they will tell you the same story. So many people got burned in the wild rise in the stock price that followed the IPO - Dhs10 to Dhs160 - that investors remain on the sidelines, and each rise in price still brings out the sellers.

But surely there must be a point when this backlog of disappointment is cleared, and Emaar Properties' stock starts to reflect the true value of the company. For the present share price is at one-third of net asset value and, based on recent apartment and villa sales, profits are sure to rocket this year and next.

It was now 18 months ago that HSBC published its research document on the company indicating a fair value of between Dhs40 and Dhs66 for the shares, presently selling for just over Dhs20. And, if anything, Emaar Properties is ahead of the assumptions then made by HSBC about its future prospects.

'We therefore believe that the market is overcompensating for demand risk and thus incorrectly pricing Emaar', concluded HSBC in February 2001. Now that demand risk is virtually zero surely the market will think again.

For with mortgage rates at 6.5% and likely to remain low, property is seen as an attractive investment, and with rental yields of around 10% Emaar's villas look a good buy, particularly when its finance company Amlak only requires a 10% deposit from buyers.

It maybe stock market investors are so skeptical that they will want to see the profits on the home page of AMEInfo before they invest in Emaar Properties, already the Middle East's leading real estate company. In the meantime the shares look an obvious bargain and can also be bought by foreigners.