Arabtec, Union Properties remain rooted as ‘fils stocks’
Union Properties’ share is under unremitting pressure, with analysts now complaining about the need for developer to more upcoming with details. File picture of Uptown Motorcity, one of the residential communities in the portfolio. Image Credit: Gulf News Archive
Dubai: Union Properties and Arabtec stocks have not fallen low enough – that’s what analysts are saying even as both hit all-time lows.
A year ago, Arabtec’s shares were trading at Dh2.16. Today, they are at Dh0.70, while Union Properties – the developer of Motor City and the Uptown communities – is now at Dh0.19, from Dh0.39 in late February last year.
They have now become “fils stocks”.
“There’s no reason to buy these stocks now,” a technical analyst said. “There’s no bullish reversal seen in the prices as yet – so we continue to advise clients to sell.”
Analysts said that from both a technical and fundamental perspective, the outlook is bearish. The next support level for Union Properties’ share price is Dh0.18/Dh0.175, while for Arabtec, the support level is at Dh0.60, an analyst said.
From a technical viewpoint, neither stock is breaking its 50-day moving average – a popular indicator to assess price trends. Fundamentally speaking, the real estate sector, and especially the smaller players in it, is still challenged by weak demand.
Litany of problems
The two stocks have been hurt by a range of factors from a slowdown in the real estate and construction sectors and delayed payment cycles, to internal problems amidst changes in management.
Over the past two years, Union Properties has seen a shake-up in its board of directors, including vice-chairmen. Financially, it hasn’t been an easy ride either, reporting a Dh219 million loss in 2019, down from the Dh62.3 million in profits in 2018.
In a statement, the company attributed the losses to the bank finance cost from subsidiary loans, saying they “contributed significantly” to the year’s net loss. This brings its accumulated losses to over Dh2 billion, which could soon prompt regulatory actions.
Companies, for example, are obliged to hold a meeting of shareholders to vote on the continuity of operations if losses exceed 50 per cent of the share capital.
Even worse, the developer has not been fully clear on how it plans to turn around its dire performance.
“We generally have avoided such companies – the reason being that the level of information and disclosure was not high enough for us to have conviction and make an investment decision,” a fund manager in Dubai said.
“We are fundamental-based research managers, and we make decisions based on complete understanding, and for that, we need information.”
Investors have grown tired of holding the stock, as evidenced by the high selling activity, and have already voiced concerns about new plans. The company earlier said its turnaround plan is built around an expansion of the Dubai Autodrome. But there has been speculation that the Autodrome could be sold in full or partially.
For Arabtec, the company was on the rise for about two years after implementing a sweeping turnaround strategy that involved hiring a new chief executive. The contractor saw consecutive quarters of profitability as it focused on core operations and key markets.
An Arabtec construction site in Dubai
After a few upbeat quarters, it all turned sour for Arabtec. Its shares remain grounded, with not much of a lift. Image Credit: Gulf News Archive
That was all until mid-2019 when profits plunged and the CEO stepped down from his position as the contractor incurred losses on one of its investments. Since then, Arabtec has held talks with Abu Dhabi-based Trojan Holding about a potential merger, and earlier this year, announced it had returned to making a loss.
In 2019, the company recorded Dh774 million in losses – its first annual loss since 2016. Arabtec blamed the loss on its core construction business and cited a slowdown in the industry.
A note from technical analysts at First Abu Dhabi Bank Securities said that any closing price under the recent low of Dh0.69 will extend the decline to the next support zone at Dh0.6/Dh0.58 in the short term. The note said the pattern of price performance is now bearish.
In the first two months alone, the stock was down by over 42 per cent, as per figures from FAB.