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Emaar and RAK Ceramics top picks for MENA fund

Manager says Emaar stock mispriced by market.

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July 21, 2010 3:14 by



ING Investment’s Middle East North Africa (MENA) fund has Dubai property developer Emaar Properties and Abu Dhabi-based RAK Ceramics among its top picks to be an early investor in growth companies.

Fadi Al Said, head of equities at ING’s Middle East Investment Team and portfolio manager for the $50 million fund, said the fund invested heavily at the peak of the debt crisis in Dubai, when most investors preferred to remain on the sidelines and valuations were cheap.

It returned more than 34 percent to investors last year.

“You don’t swing at every opportunity but when we see an opportunity like this, we wanted to swing with all our might,” said Al Said.

The fund has more than 4 percent of its assets in Emaar, a company Said believes is not adequately valued by the market. He said markets are ignoringthe value of parts of the company.

“There is definitely a mispricing for Emaar. If you are on the ground and know the businesses, you know there is value and for us, we definitely think there is value,” he said.

The manager believes Emaar’s leasing, hospitality and malls business alone is worth 2.5-3 dirhams a share. The stock currently trade at 3 dirham mark, which means investors are getting the firm’s international operations and its land assets for free, he said.

Cheap valuations and a business with diverse operations are the main attraction of RAK Ceramics, the biggest ceramics factory in the world, the manager said.

“This company generated cash flow last year almost close to its market cap. There is not a lot of interest in the stock. It trades at 4 times its estimated earnings and is growing in double digit,” he said.

“In my career, I have seen very few companies with a sustainable business model, trading at such low valuations.”

The fund also likes Saudi pipe system and technology firm Amiantit and Egyptian firm Sidi Kerir Petrochemicals Co, the manager said.

WARY OF BANKS

Al Said’s fund has limited exposure to banks in the Gulf Arab region as he believes balance sheet growth prospects are curtailed in the current environment as more banks begin to be cautious on their lending.

“When a bank is trading below book value, the market is telling you that it does not agree with the stated accounting book value that you are putting in balance sheet,” he said.

The fund is also currently not invested in Saudi Basic Industries Corp (SABIC), the biggest petrochemical company in the world, as it believes it’s an “over-crowded” stock.

“We are a little bit stingy in paying for these businesses. Usually they are over liked and they over hated at times so it’s all about getting in at the right time. Now, SABIC is a bit overcrowded at this moment,” he said.

(Reporting by Dinesh Nair, Editing by Andrew Callus)



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