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Diary of an armchair investor

By Richard Dean  www.arabianbusiness.com

There’s plenty of ammunition for taking cheap shots at Aldar Properties. For a start, the company lost more than AED1bn every month last year after a massive writedown of property assets. There’s the continued weakness of the Abu Dhabi property market. Then there’s Ferrari World. Aldar’s flagship theme park was barely a quarter full last Saturday when I took my 11-year-old nephew, who was bored within an hour.

Abu DhabiBut at the knock-down share price of AED1.66, brave investors with a long-term view might be willing to overlook these blemishes.

First, I like the bullish comments from CEO Sami Asad this week. Speaking at Citiscape on Sunday, he told Reuters that Aldar will make a profit this year. He fell short of a forecast, but said he hopes to sell 2,000 villas and apartments.

Second, the Abu Dhabi office market is picking up, according to a new report from CB Richard Eliis. That’s good news for Aldar’s rental income because its swanky new buildings – such as the giant Frisbee near the airport – are just what big international oil companies want.

Third, there’s the AED19bn bailout from the government, announced earlier this year. It was kinder to shareholders than many had feared. Yes, there’ll be some dilution from a convertible bond issued to the Sovereign Wealth Fund Mubadala. But much of the help came in cash, with the government buying assets on Aldar’s flagship Yas Island development (they’re even taking the disappointing Ferrari World off Aldar’s hands).

Finally, Aldar is winning over analysts, including Jad Abbas and Ahmed Gad at EFG-Hermes, who issued a ‘buy’ note last week. “Our concerns regarding shareholder value destruction from dilution/impairment are now priced in by the market,” they wrote. EFG expects Aldar to hand over plenty of apartments and villas from its Raha Beach project this year, and predicts a “growing and maturing recurring income stream” from renting offices, hotels and shopping malls. Their target price for the stock: AED1.84.

Irfan Ellam at Al Mal also rates Aldar a ‘buy’. Back in March he pointed out that Aldar had a price/book ratio of just 0.23 – less than half the average for regional developers, and tiny compared to the Asian average of 1.6. Aldar stock has jumped a bit since then, but the basic argument still holds – it’s cheap.

(Of course, analysts aren’t always right. While doing my homework for this column, I came across an old Aldar tip from analysts at EFG Hermes. Dated June 2008, it had a Long-Term Fair Value target – wait for it – AED44.90!)

More broadly, it’s worth thinking about the bigger picture in Abu Dhabi. If you buy into the government’s grand Vision 2030 plan – and I do – then there’s an awful lot of work to be done to transform Abu Dhabi from a sleepy oil town into a glittering 21 century metropolis. Who’s the biggest state-backed builder in Abu Dhabi? Aldar Properties. The stock is down some 80 percent from its peak in 2008, with a market value today of just over $1 billion. In the context of Abu Dhabi’s trillion dollar ambitions, that could prove a bargain.

Armchair Insight: Turnarounds are inherently risky. But if you believe in the Abu Dhabi story, Aldar shares are worth a look at this price.

Tuesday April 19: Getafe? Get real

Royal Emirates Group certainly made headlines when it announced plans to buy a Spanish football club: the story was the ‘most read’ on ArabianBusiness.com for much of the week. But can the Group makemoney? Surely not if the target is lowly Getafe, for a reported price of €90m.

We’ll get to the challenges, but first let’s look at the potential upside. Getafe plays in La Liga, the top flight of Spanish football that’s home to the world’s two richest clubs, Real Madrid and Barcelona. Each has annual revenue of more than €400m, according to the Deloitte Football Money League. Buying either of these giants is out of the question. On the surface, then, perhaps it makes sense to buy a second tier club at a knockdown price and nurture it into a top team.

In theory yes, in practice near impossible. The stadium has just 14,000 seats, which Getafe doesn’t always fill, so matchday revenue is small. Ditto commercial revenue from sponsorship and shirt sales. Then there’s TV money.

For small clubs in the lucrative English Premier League, this is a honeypot. That’s because the league negotiates one deal, then shares the cash equally among all 20 clubs – champions Chelsea get the same as minnows Stoke City. Not so in Spain, where clubs do individual TV deals. This is great for Real and Barca, with a global TV fan base, but tough on the Getafes of this world.

Finally, there’s the small matter of playing football. Getafe aren’t very good at it, and never have been. They haven’t won a trophy of note, and were only founded in 1983 from the merger of two smaller clubs. When investors from Abu Dhabi bought Manchester City, they bought a sleeping giant with a rich (albeit 40-year-old) heritage of winning, a new stadium, and 40,000 loyal fans. That’s proving tough enough. Getafe will be an even bigger call.

Armchair Insight: How do you make a small fortune a football club? Start with a large fortune.

Wednesday April 20: Tamweel returns

Mortgage lender Tamweel will need a strong investor relations team when it returns to the Dubai Financial Market. Investors will have so many questions before they buy shares in the company that suspended trading in late 2008, after the credit crunch and Dubai property market conspired against it.

On the plus side, Dubai Islamic Bank is now a strong parent, having taken a majority stake in Tamweel for AED375m. So it will have access to funds that it can lend to new homebuyers.

But I want answers to a number of questions before I buy Tamweel. More clarity on the balance sheet: the DIB deal valued Tamweel at about AED1 per share, yet Tamweel puts is book value at more than AED2 per share. Just how much are those big home loans – granted at the peak of the market – worth today?

Other questions include: exactly where will Tamweel get its funding, and at what cost? What’s the quality of the management team? What corporate governance structures are in place to make sure we don’t see any more mishaps?

Armchair Insight: Long-term, mortgage lending in the UAE and the Gulf is a surefire winner. But we need transparency.

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