Drake & Scull expects record return

Drake & Scull International (DSI), the Dubai contractor, expects to post a record profit this year and is considering its first dividend to shareholders since 2009, bucking the trend of the region's depressed development and construction industry.DSI is on track to exceed Dh200 million (US$54.4m) in profit this year, a 23 per cent jump from last year, Khaldoun Tabari, the chief executive, said in an interview this week with The National. Total revenue should surpass Dh3.5 billion, an 89 per cent increase from last year, he said. Expansion in Saudi Arabia and Abu Dhabi should help to grow the company's backlog of projects to Dh10bn by the end of the year, up from Dh7.5bn at the end of June, he said, DSI raised Dh124bn in an initial public offering in 2008, which fuelled a round of acquisitions in the region, providing the company a presence in all the major markets. With no new acquisitions planned, Mr Tabari said he would be likely to recommend that the board approve a cash distribution to shareholders at the end of the year. "If you are not going to acquire companies and you have got the cash, what is better than to give it to shareholders?" Mr Tabari said. Paying a dividend may produce mixed reactions from the investment community. "I would rather see them preserving cash right now," said Majed Azzam, an analyst with AlembicHC, which has an overweight rating on the company's shares. "If they do pay a dividend they may need to raise debt, which investors don't like." Middle East construction and property stocks have been out of favour for the past year. DSI's shares were trading at 85.4 fils yesterday, down from a high of Dh1.10 on April 20. But Mr Tabari said the company's balance sheet was strong and had tender offers out on projects in the region valued at Dh30bn. "We can borrow if we need to, but we have plenty of cash," Mr Tabari said. By the end of the year Saudi Arabia will account for between half and 55 per cent of the company's backlog, with Abu Dhabi the next largest market at 25 per cent. The Saudi Arabia backlog includes a 2bn riyal (Dh1.95bn) deal to help to fit out the King Abdullah Petroleum Studies and Research Centerproject in Riyadh. The company booked the first Dh210m from the contract in the second quarter. DSI is in the midst of a transition, expanding beyond mechanical, electrical and plumbing into more civil and engineering contracts, where DSI serves as the primary contractor, as well as water and power infrastructure.Four years ago 100 per cent of the company's business was in mechanical, electrical and plumbing work.By the end of the year civil contracts will account for half of the business, with mechanical, electrical and plumbing, and water and sewage treatment contracts each providing 25 per cent, Mr Tabari said. DSI has faced minimal problems from turmoil in the region. The company has stopped work on a Dh85m hotel project in Homs, Syria, and relocated about 20 employees. In Libya, the company shut down its one-man office when the civil war broke out. The company was expected to win two contracts worth $100m, but those deals were never included in its backlog, Mr Tabari saidDSI has resumed work on two projects in Egypt, valued at Dh540m. From / The National