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Arabtec Surges to 2-Month High on Louvre Contract: Dubai Mover

Arabtec Holding Co. surged to the highest level in more than two months after the United Arab Emirates’ biggest construction company by market value won a contract to build Abu Dhabi’s branch of the Louvre museum.

The shares rose 5.3 percent to 2.58 dirhams, the highest since Oct. 31, at the close in Dubai. The stock was the second-biggest gainer on Dubai’s benchmark DFM General Index, which climbed 2.1 percent to 1,727.29, the highest since March 5. A venture of Arabtec, Constructora San Jose SA and Oger Abu Dhabi won a 2.4 billion-dirham ($653 million) contract from government-owned Tourism Development & Investment Co and construction will start immediately, Arabtec said today.

“The new award could imply strengthening ties between Arabtec and its new shareholders linked to the Emirate of Abu Dhabi,” said Jan Pawel Hasman, a Cairo-based analyst at EFG-Hermes Holding SAE. The ties “bode well for the company’s opportunities in securing government-sponsored contracts in the future, giving it an edge over local peers,” he said.

Arabtec shares surged 48 percent last year as Abu Dhabi government-controlled Aabar Investments PJSC raised its stake in the builder to 21.6 percent. Abu Dhabi, holder of most of the U.A.E.’s oil reserves, said last year it plans to resume stalled projects including branches of the Louvre and Guggenheim museums that were suspended after the global credit crisis brought a property boom in the U.A.E to a halt.

Worth the Risk

Arabtec’s rally in 2012 outpaced a 20 percent gain in Dubai’s benchmark index and an advance of 46 percent for real estate developer Emaar Properties PJSC.

Still, the company may post an 18 percent drop in full-year profit to 214 million dirhams, according to the mean estimate of 11 analysts on Bloomberg. Four analysts recommend investors buy Arabtec shares, while 10 say sell, according to data compiled by Bloomberg.

“The profitability of these contracts remains the main question mark and we could see some pressure on the company’s margins going forward,” Hasman said, adding that exposure to seizable awards may require more financing. “Nonetheless, sustained revenue growth generated by these contracts could be a sufficient justification for taking such risks.”

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