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Drake & Scull Quarterly Profit Surges on Higher-Margin Projects

Nov. 6 (Bloomberg) -- Drake & Scull International PJSC, a Dubai-based construction company, said third-quarter profit climbed almost sixfold, meeting analysts’ estimates, as it focused on more profitable projects.

Net income rose to 23.8 million dirhams ($6.5 million) from 3.9 million dirhams a year earlier, the company said in a statement today. The mean estimate of four analysts was for a profit of 24.7 million dirhams, according to data compiled by Bloomberg.

“They are picking up the pace on projects in Saudi Arabia and Abu Dhabi at a time when their productivity has improved,” said Taher Safieddine, an analyst at Shuaa Capital PSC. Drake & Scull is focusing on oil and gas as well as mechanical, electrical and plumbing work, which tend to have higher profit margins than other civil engineering projects, the analyst said. He rates the stock “hold” with a price estimate of 0.71 dirham.

Construction companies in the United Arab Emirates are beginning to benefit from a real estate rebound in Dubai and increased government spending across the Gulf region. The Dubai property crash in 2008 caused most contractors to seek work in regional markets as projects dried up in the U.A.E.

Drake & Scull’s order backlog climbed to 12.4 billion dirhams at the end of third quarter from 7.5 billion a year earlier, the company said. Quarterly contract revenue surged 60 percent to 995 million dirhams. Selling and general expenses fell to 6.6 percent of revenue in the first nine months of the year from 10.5 percent a year earlier.

“Improved collections and advance payments on major projects” boosted net operating cash flow to 230 Million dirhams from 83 million in the previous quarter, Chief Executive Officer Khaldoun Tabari said in the statement. Working capital “significantly improved” as the company focused on collecting payments more quickly.

“They were burning cash and their receivables were increasing significantly,” Shuaa’s Safieddine said. “Now they seem to be moving in the right direction.”

To contact the reporter on this story: Zainab Fattah in Dubai at zfattah@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net

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