Dar Al Arkan gains most in three years on growth bets

Dar Al Arkan Real Estate Development Co was among the biggest gainers in Saudi Arabia’s benchmark stock index on investor speculation the company will benefit from about $500 billion in government spending.

The stock surged 8.5 per cent, the most since May 2009, to 8.9 riyals at the 3:30pm close in Riyadh as the volume of shares traded jumped to the highest since November 2009. The shares were the third-biggest gainer on Saudi Arabia’s Tadawul All Share Index, which advanced 0.6 per cent to 6,663.48, the highest since June 1. Dar Al Arkan’s shares, up 23 per cent this year, trade at a price-to-earnings ratio of 9 times compared with 14 times for the country’s benchmark.

“Dar Al Arkan has been under the radar of investors for some time now because of its attractive price-to-earnings ratio,” Abdullah Alawi, head of research at Jeddah, Saudi Arabia-based Aljazira Capital, said in an e-mailed response to questions. The gains have also been driven by “the buoyant sentiment among investors toward large real estate companies in the kingdom, which are believed to benefit from the massive upcoming housing projects financed by the government.”

King Abdullah announced a $130bn plan in 2011 to build homes and create jobs to stave off regional protests that toppled leaders in Tunisia and Egypt. The rulings added to a commitment in 2010 to spend $384bn over five years on housing, transport and education. Prince Alwaleed bin Talal is constructing the world’s tallest tower in Jeddah at a cost of $1.2bn.

Dar Al Arkan, the second-biggest real estate company in Saudi Arabia by market value, posted a fourth-quarter profit on January 18 that beat analysts’ estimates. The company said last week it ended 2011 with a “strong cash position” of 2.5bn riyals ($667 million), more than twice as much as in 2010.

Dar Al Arkan led advances today on the Real Estate Development Industries Index, which has gained 9.2 per cent so far this year. The shares declined 19 per cent in 2011.

Ten analysts including Alawi recommend investors buy the shares of the company, while five have a hold rating on the stock, according to Bloomberg data. One analyst recommends investors sell the stock.