DFM closed higher by 0.11 per cent on Tuesday (October 13) while ADX was in the black by 0.27 per cent.
Two leading listed companies, which were making losses in recent times, announced their earnings reports... and to the surprise of investors, posted profits. Drake and Skull made a net profit of Dh199 million for the first six months, while Union Properties' profit exceeded half a billion dirhams in the third quarter. But there is something more than what meets the eye.
As far as Drake and Skull is concerned, the Group disposed its stake in Qatar, for which a gain on disposal amounting to Dh354 million was included in the financial statement. As you would have guessed, with out that one time gain, Drake and Skull would have posted a loss more than Dh153 million.
The auditors of Drake and Skull have also posted some adverse comments regarding the financial statements. The auditor has mentioned that it was not provided with bank statements and reconciliations for bank balances and liabilities, and which prevented it from doing the necessary checks. They also mentioned that they could not correctly verify the gain on disposal due to lack of appropriate data.
Investors will need convincing
The total accumulated losses of the group as of June 30 amounted to Dh4.80 billion and raises serious questions about its ability to continue as a going concern. Even the cash and bank balances of Dh91 million don’t convey the true picture. After accounting for term deposits under lien, bank overdrafts and cash related to discontinued operations, the cash and cash equivalents become a negative Dh86 million.
Union Properties is doing better. Here, the company had a gain on fair valuation of investment properties amounting to Dh821 million, which enabled it to post a profit of Dh509 million. No surprises for guessing, Union Properties would have posted another loss without this one-off gain.
Union Properties has explained that an independent third-party survey of its entire land bank at Dubai Motor City revealed some new information. The company now calculates that it has additional Gross Floor Area (GFA) amounting to Dh821 million, which enhanced the valuation of the aforementioned property.
In a nutshell, nothing has changed, it is just a new accounting entry and the company still has challenges as it did a year ago.
The devil is always in the details... UAE investors will need to keep a close scrutiny.
- Vijay Valecha is Chief Investment Officer at Century Financial.