By Hadeel al Sayegh www.thenational.ae
Depa, the Dubai-based interiors contractor that worked on the Burj Khalifa, is becoming a favourite among construction stock pickers in the country.
While many builders have been hurt by project cancellations, payment delays and reduced profit margins, Depa’s balance sheet looks more solid.
The major issue for the company is a claim for work on the Burj Khalifa, the world’s tallest tower, which it expects could take between one and three years to resolve.
The market has already discounted the stock based on that commercial dispute, which has meant the company has not been able to fully realise its profits on the project.
On the upside, analysts say the company may be in for a windfall when the dispute is resolved.
“It does not matter how you sugar-coat the event, there has been destruction in shareholder wealth of 10 per cent – but that is the bad news,” said Chet Riley, an analyst at Nomura who has a “buy” recommendation on the stock with a target price of 93 US cents.
“The good news is there could be a windfall settlement in time, which would see revenues restored by costs plus the eroded profits, with the company still snagging and providing remedial works at the Burj Khalifa.”
The stock closed 3.2 per cent higher yesterday at 61 US cents. A full recovery would increase its cash position by Dh220 million.
Depa’s order backlog has increased to Dh2.4 billion from Dh2.1bn, and the company has only 26 per cent of its order book coming from Dubai projects.
The acquisition of Design Studio, based in Singapore, is likely to reap rewards for Depa as it looks to the east for growth.
“It gives them access to contracts in China, South Korea and South East Asia,” said Mr Riley. “Globally, these growth areas are positive for them.”