Abu Dhabi's seen a lot of merger and acquisition plays in recent years, most of which have proved winners. The NMDC-NPCC alliance could be the next. Image Credit: Gulf News Archive

While the DFM edged up further on Wednesday after Monday’s horror show, there hasn’t been much cheer for DXB Entertainments as it starts on the delisting process.

But for Abu Dhabi’s National Marine Dredging Corporation (NMDC), its stock had a solid upswing this year with gains by 70 per cent year-to-date. Belonging to ADX’s service sector, the company also leads sectoral peers like Gulf Medical Projects, Emirates Driving and Abu Dhabi Aviation in YTD gains. (At an individual level, the ADX service sector has gained 26 per cent since the start of the year.)

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Built on strong foundation

The NMDC shares picked up momentum during the second-half. The group primarily operates in the UAE as well as India, Bahrain and Saudi Arabia. The price rally is strongly supported by its financials and balance-sheet strength.

For the first nine months, NMDC had revenues of Dh2.69 billion as against 2019’s Dh1.72 billion. This was mainly from growth in the energy services sector. Overall profitability also increased, ending September at Dh142.70 million as against Dh116.33 million last year.

This resulted in 20 per cent growth in current 9-month EPS, which stands at Dh0.57 a share (Dh0.47 in 2019).

Beach-side contracts

In September, the company received an Dh600 million contract from Egypt to expand Lake Manzala. Prior to that, some of the major contracts awarded include those for Yas Beach Island by Aldar and the Corniche Beach Development from Abu Dhabi Municipality. This contract is expected be one of the crown jewels in NMDC’s portfolio since it involves dredging of approximately 3.5 million cubic meters of material to create a 3.5-kilometre beachfront.

Deal time

At its recent AGM, the management finally approved the offer to merge with National Petroleum Construction Company. This was pursuant to a proposal put up in August to the NMDC management. The deal is a big win for NMDC shareholders as it will create an integrated oil and gas as well as marine services company with footprints across major MENA and South Asian countries.

The entire share capital of NPCC will be transferred to NMDC. NMDC will issue to NPCC shareholders a convertible instrument for 575 million ordinary shares of NMDC on closure of the transaction.

The conversion price is fixed at Dh4.40 per share (a discount of around 20 per cent over the NMDC share price on the day of the announcement). Currently trading at Dh5.95, the stock is near its 5 year resistance high zone of Dh6.50–Dh7.

A break above these levels would be hugely bullish for further momentum.

- Vijay Valecha is Chief Investment Officer at Century Financial.