broker: sunland worth 'close to zero' in dubai

This is today GC Bulletin.

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Broker says Sunland worth 'close to zero' in Dubai

by Nick Nichols, business editor

April 2nd, 2009

A MAJOR broker has written down the value of Sunland Group's Dubai business to 'close to zero', and even forecast the company will exit the Arabian principality in the wake of an economic downturn there.

Bell Potter Securities also has questioned the proposed buyback of up to 10 per cent of Sunland's shares at a time when capital was hard to secure and the company was topping up its acquisitions in Australia.

The broker's assumptions fly in the face of Sunland managing director Sahba Abedian's confirmation that the company was in the Middle East for the long haul.

Mr Abedian last week said that Sunland was 'still very confident' in the emerging markets of region, although he conceded it would be 'a number of years before we see a sense of normality' there.

The sands firmly shifted for Sunland in Dubai last week after the collapse of the group's joint venture to develop the $2.2 billion supertower, The Atrium.

The joint venture, with EWM Group, a company linked to golfer Adam Scott, was dissolved in the face of slowing apartment sales, forcing Sunland to assume full control of the property and write down $130 million on the project.

Total writedowns of $200 million will push Sunland to an annual loss of $135 million this financial year, and force the company back to its Australian heartland for new opportunities.

Bell Potter said that despite Sunland's low gearing it would have to undertake new projects in Australia through joint ventures.

This is not new for Sunland, which built the Q1 with the help of partner Surfers Paradise Beach Resort and is undertaking a joint-venture housing project with Sanctuary Cove developer Mulpha Australia.

"We are surprised by the buyback, given potential capital requirements in Dubai and the need to invest in Australia to drive earnings growth," said the Bell Potter report.

It said the move implied Sunland was confident of securing partners for new ventures.

Bell Potter has revised down Sunland's earnings from D1 and the Palazzo Versace in Dubai because of lower margins, and has forecast a slight fall in Australian earnings.

It estimated the company would deliver a net profit of $23 million next financial year, primarily to come from its Australian business.

It has set a price target of 60c for Sunland's shares, and downgraded its recommendation from buy to neutral.

Bell Potter said the price target 'values Dubai close to zero', compared with Sunland's estimate of 24c per share. Sunland values its Australian business at $1.15 a share.

Mr Abedian last night described as 'realistic' Sunland's current estimate of its Dubai business.

He also said Sunland was confident cashflow would fund acquisitions this year. Sunland's shares closed at 55.5c yesterday, down 4.5c. climbed from a low of 30c to a recent high of 68.5c.
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Link: http://www.goldcoast.com.au/article/2009/04/02/65265_gold-coast-business.html