District cooling giant Tabreed is gaining on well-timed asset picks – and investors are interested

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Tabreed made a splash last year with district cooling asset deals involving Emaar (for Downtown District) and Aldar (related to Saadiyat Island). More acquisition targets could be on company’s radar. Image Credit: Virendra Saklani/Gulf News

Tabreed, the Dh7.88 billion market capitalized district cooling company, is back in the news following its CFO’s acquisition-related talk. The CFO, Adel Salem Al Wahedi, recently mentioned that the company was exploring acquisition opportunities for district colling assets in Saudi Arabia, Egypt, and India.

The company informed the stock exchange that nothing is finalized, but the news is interesting. Last year, it had acquired the Downtown District Cooling concession from Emaar, making it the largest district cooling related M&A transaction in history. Tabreed now delivers more than 1.4 million refrigeration tons and has 86 plants in its portfolio. It gets 95.8 per cent of the revenue from UAE.

Solid work ethic

The company has delivered steady growth and regular dividends. Revenue, which was Dh1.20 billion in 2015, is projected to rise to Dh2.01 billion this year. The increase is proof of solid management and a commitment to performance-based yardsticks. For example, Tabreed delivered a record 13,266,194 hours worked without a single lost-time incident (LTI), the last one being in July 2015.

This is a testimony to the management’s laser-like focus on quality of service. Meanwhile, The first quarter group revenue increased 21 per cent to Dh357.6 million from Dh294.4 million. Profit from operations increased by 28 per cent to Dh134.6 million and net profit by 4 per cent to Dh85.5 million. The portfolio is growing with the acquisition of Saadiyat Island’s plants from its long-term partner, Aldar, and another 300 RT in Oman.

Divestment chances

The pandemic means many real estate firms will try to divest their captive district cooling assets to unlock value and improve the strained cashflow. This means more consolidation in the industry. Tabreed is a commanding player in the GCC’s district cooling market, and positioned perfectly to capitalize on opportunities. The company is likely to sell its stake in Qatar Cool which could be worth around Dh1 billion.

The company’s experience means it can pursue growth opportunities in international markets where its expertise in operating marquee assets will come in handy. India is one country where Tabreed is planning to expand as the district cooling market is poised for rapid growth. Tabreed is an excellent long-term pick, and shareholders get paid a 2 percent dividend yield.

Vijay Valecha

The writer is Chief Investment Officer at Century Financial.