Sorouh faces concern over its need for cash

Sorouh Real Estate will need to raise more money to complete its existing projects - a concern that led the investment bank Credit Suisse to cut its target share price by almost a third yesterday. The bank trimmed its 12-month price estimate for the Abu Dhabi developer to Dh2.33, down from Dh3.43, and lowered its rating from "outperform" to "neutral".

This comes about a month after Sorouh reported surprising first-quarter profits of Dh131.6 million, but those numbers were inflated by the sale of a piece of land near the marina on Reem Island. Like most property developers in this difficult economic climate, Sorouh is suffering from slow sales , which means little cash flow. Credit Suisse estimates Sorouh is sitting on about Dh2 billion in cash, which it is likely to burn through by the end of the year at current rates.

It will need to raise another Dh3bn or Dh4bn to finish the projects already under construction and there is no guarantee that type of money will be readily available given the economic turmoil of late. "The market is almost pricing in the value of all projects under construction and hence we believe the stock to be fairly valued at this stage, given current financing concerns that we believe have put pressure on future development projects," the bank's analysts wrote.

Sorouh is also more expensive than other developers, with a price-to-book ratio of 0.85, compared with an average of 0.77 for its peers in the MENA region, it said. Sorouh is scheduled to complete its Sun and Sky towers within the next few months, which could be a major boost to the company if they are delivered on time. It is also possible the company could opt to sell more land, which Credit Suisse believes would provide a lift for the stock.

The company's shares are down more than 20 per cent for the year so far, but closed ahead 2.4 per cent at Dh2.10 yesterday. @Email:[e-mail]