Analysts advise Taqa investors to return

What's up Questionable acquisitions, a U-turn in strategy and a steep drop in profits have caused investors to flee Abu Dhabi National Energy, known as Taqa.

Questionable acquisitions, a U-turn in strategy and a steep drop in profits have caused investors to flee Abu Dhabi National Energy, known as Taqa. Analysts say they should consider coming back. The company's shares traded at Dh1.27 yesterday, down from a 12-month high of Dh2.06, but Nomura Securities puts the target price at Dh2.20 and Abu Dhabi Commercial Bank sees it reaching Dh2.56.

The banks say the stock is grossly undervalued, even though the firm reported this week that profits last year fell 64 per cent on lower oil and gas prices, and earnings per share decreased to 3 fils from 36 fils the year before. Taqa was a product of the most recent oil boom, entrusted by Abu Dhabi Government entities with dependable power stations in the UAE and enough cash for an acquisition spree of oil and gasfields, power plants and pipelines that did not always mesh seamlessly.

Since a management reshuffle late last year, the mission has changed. The company's new general manager, Carl Sheldon, says the buying binge is over and his focus is on making the existing assets work together. Taqa will invest US$1.4 billion this year to increase performance in its various units and plans to combine marketing and fuel-buying operations that are now replicated across its divisions in North America, Europe and the Middle East.

"We're optimistic about the resilience of our business in terms of its ability to generate cash," Mr Sheldon said. "There will be no increase in net debt. You'll see the trend is to drive our leverage down." The "clear direction" was a welcome change, said Scott Darling, an analyst at Nomura. "We believe that Taqa is turning the corner and see both the equity and debt as attractive long-term investment opportunities," Mr Darling said.

As an added bonus, the board of directors this week approved a dividend of 10 fils a share. While it was down from last year's 15 fils a share, it was a surprise given the company's poor performance. @Email:[e-mail]