The National Investor (TNI)

The National Investor is a leading Abu Dhabi-based investment management and advisory firm.
We have three principal lines of business: Asset Management, Investment Banking and Private Equity.

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Tabreed’s growth is heating up and so are the risks


Tuesday 28th February. Dubai, United Arab Emirates: 2007 results recently announced from Tabreed have risen in line with expectations made by The National Investor (TNI) in their early 2007 report. But the Abu Dhabi Investment Bank’s 2008 analysis is quick to add that the 16.9% growth from the water cooling company “was not necessarily sustainable”.

The Report published today points to slowing momentum in Tabreed’s district cooling segment, which was below forecasted growth in 2007. It also highlights landmark 2007 deals with property groups Aldar and Sorouh as presenting potential risks in delayed revenue and in stretching an already leveraged balance sheet. At the same time, these deals offer significant growth opportunities for Tabreed in terms of district cooling capacity.

On reviewing increasing competition in the sector from young companies such as Palm Cooling, TNI’s update authored by Analysts Awan and Davidson recognizes Tabreed’s position as a market leader, and suggests that eventually the younger companies will become significant threats.

Another “substantial risk” to growth identified by Awan and Davidson was the drop in capital expenditure over the year from a planned AED 2.4bn, to an actual AED 1.1bn. “This would limit capacity growth in the immediate future however we do expect Tabreed to improve and sustain its operating margins” declares the report. This margin expansion is expected to be achieved through better prices, controlled staff costs and growing district cooling capacity.

TNI updated its target price to AED 3.23 and rated Tabreed as Fairly Priced. The bank had initiated coverage in 2007 with an Underpriced rating. “Our Fairly Priced rating is underpinned by higher than expected growth in smaller segments and downgrading of estimates for the district cooling segment”, the report said.

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