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Was there a design behind Emaar's fall?

BY BABU DAS AUGUSTINE (Assistant Editor) / 16 February 2006

DUBAI — Property major Emaar's share has been on a rollercoaster ever since it declared its full year results on January 28. The market is now abuzz with rumours that a cartel of bear operators with inside information have been hammering down the shares to make quick bucks from the falling market.

Emaar shares have fallen over 20 per cent since the company announced fourth quarter earnings. On Monday, after the trading hours, the company announced a 40 per cent cash dividend but there was no bonus shares as the market has been anticipating for long.

“Although the announcement came after the trading hours, shares fell sharply by 4.5 per cent on Monday and the market traded 77 million shares worth Dh1.36 billion. There was nothing unusual happening that day, except that Emaar was holding its board meeting to decide on how to distribute its profits. Against the backdrop of huge investor expectations that the company was going to announce bonus shares, it was indeed unusual that the investors turned net sellers even prior to the official announcement that company is not distributing bonus reached DFM,” said a DFM broker.

On Monday, the  stock opened at Dh18.75 reaching a high up to Dh18.80 and continued to maintain levels above Dh18 for first 30 minutes. Later on all of a sudden selling pressure by some operators dragged the price down up to Dh17.15.

“It is hard to believe that some investors suddenly turned net sellers based on intuition,” said an analyst. Many market intermediaries believe that some operators got a wind of what was in the offing much ahead of the official notice to DFM, which resulted in massive selling of Emaar shares on Monday.

“Tuesday was the day of the panic sellers who joined the bear bandwagon. The ordinary investors who had no clue of what happened with Emaar on the previous day suddenly woke up to the reality that the company has gone against their expectations and rushed to the market to unwind their positions. But of course, the 'well informed' operators had already sold their positions and were ready to pick up the shares at at lower price,” said a market source.

From Monday's opening to Tuesday's closing, the share fell about 10 per cent. The bears are understood to have made a killing through their sales on Monday and many are on their way to accumulating the shares at cheap rates.

Analysts say fundamentally nothing has changed with Emaar share or the UAE market during the past two days. “Ordinary investors are becoming victims of their emotions and the big waves created by  smart operators who are making the big bucks,” said a broker.

The company posted its third consecutive decline in quarterly profit last month although its's 2005 net profit surged 180 per cent from the previous year to Dh4.73 billion. Emaar's net income rose 59.6 per cent to Dh1.04 billion in the three months ended December 31 from Dh652 million reported in the fourth quarter of last year. 

The market expected the fourth quarter profits to be more than Dh1.3 billion. The recent revelation that the 4th quarter profit also included Dh200 million, one time capital gain from the sale of Dubai Bank shares has come as a huge disappointment.

“The biggest listed company in the country needs to be more transparent about their results and corporate actions. Lack of transparency has given clear advantage to those who have other means of information over ordinary investors,” an investor lamented.

Independent market analysts said the Emaar shares are trading at a discount to its fair value. “The current valuation is very attractive. While the share prices have come down by a third from the post-rights peak, it is totally irrational to believe the earnings will dip by the same measure during the next year,” said P. Krishamurthy a Dubai based analyst.

Using the  a discounted cash flow valuation to Emaar ’s existing real-estate operations (excluding financial services), Shuaa Capital had arrived at fair value of Dh20.53 per share in last September. “We still stand by our assessment of the stock. The value is definitely higher than what is reflected in the current market prices,” said Walid Shiabi of Shuaa Capital. While Shuaa expect the stock to be subject to positive surprises emanating from its regional operations in 2006 and 2007, the market is hopeful of forcing the management to give in for a bonus issue in the forthcoming annual general meeting.
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