Aldar deemed 'leading' Abu Dhabi developer

Original Article

A report by Morgan Stanley Research Europe has named Aldar Properties as the 'leading developer' in Abu Dhabi's flourishing real estate sector with bullish growth prospects. Despite a stronger performance by Sorouh in 2007, the authors say that Aldar is a 'more appealing investment' going forward. It is estimated that its share price will rise to Dhs8 in 2008 from a 52-week high of Dhs3.58.

Aldar stocks have enjoyed popularity since the company was floated in early 2005.

They rose 213% in 2007, well above the Abu Dhabi stock market rise of 52%.

Current figures estimate that the stock trades at a 71% discount, which the authors say supports their optimism.

Property prices in the emirate have risen 53% in the past year, compared to 25% in its glittering neighbour Dubai, giving investors and developers alike fresh confidence in the market.

Figures in the report put Abu Dhabi as a much stronger growth prospect than Dubai for investors looking for MENA exposure; it is at an earlier stage of the growth curve and demand continues to outstrip supply.

Morgan Stanley remains confident in the macro-economic and population growth of Abu Dhabi and the authors believe that 'Aldar will be a prime beneficiary of the emirate's sector growth'.

Commenting on the report, John Davies, CEO of Colliers International UAE said: 'Given the Abu Dhabi Government's growth strategy, the performance of the Dubai real estate market to date, the current real estate supply-side constraints in Abu Dhabi, and Aldar's specific performance as a real estate developer and market-maker, we expect short-to-medium term strength for the Abu Dhabi market'.

Solid growth prospects
The report identifies a number of key strengths that bolster the argument.

Greater diversification of the portfolio allows for capitalisation in a number of different boom sectors in the capital, and lower financing costs thanks to government support underline its growth prospects.

It has a bigger stock of land - one and a half times that of Sorouh - which brings opportunities for longer-term growth.

With a property portfolio estimated to be worth up to $61bn until 2012 and a forecast property price escalation of 95% in Abu Dhabi, this promises to be a significant rise.

Collectively, these advantages bring Morgan Stanley to recommend the stock for investment regardless of questions surrounding the sustainability of this growth.

Delivery delays are biggest risk
The biggest potential risk to the company's growth is execution delays since most of the portfolio is still in the pre-construction stage.

Yet the report remains ambivalent about the threat that this poses, thanks to the links that have been established with international construction heavyweights Laing O'Rourke and Besix which it claims should mean that delivery schedules are met and quality maintained.

Another, less significant, risk in the eyes of Morgan Stanley is a lack of geographical diversification which leaves the company vulnerable should there be a regional property slump.

The report rejects suggestions that the market will drop but, were it to go against predictions, the worst case scenario that the analysts anticipate is a 'hard landing' in Dubai causing a sharp correction, spreading across other MENA markets.

Using the example of Singapore in the Asian crisis, this could cause a slump of 15% in 2009 and 65% in 2010.