Solidere shares may fall as Cabinet efforts stall

BEIRUT: Solidere shares could shed gains that followed upbeat news on the near-formation of a new Cabinet as investors take profit on reports that political negotiations might hit a dead end, traders said.

Solidere A and B shares rose around 19 percent since the beginning of January before shedding some of their gains as news of setbacks in the government’s formation emerged some 10 days ago.

Solidere A shares closed at $13.1 Wednesday, dropping 5.7 percent from a monthly closing high of $13.9 on Jan. 21 while Solidere B shares closed at $13.32, dropping 2.7 percent from a closing monthly high of $13.7 on Jan. 22.

“Reports of setbacks in the government formation process have triggered a limited selloff in Solidere shares but a positive conclusion of talks could see Solidere shares gain another 10 to 15 percent,” Jean Michel Aoun, senior investment officer at the Arab Finance Corporation, told The Daily Star.

Improvement in domestic political stability would push Solidere A and B shares toward their respectively 52 week-high prices of $14.5 and $14.15, Aoun said. “The upside potential remains capped around those levels unless there is a breakthrough in the Syrian crisis.”

A breakthrough of Solidere shares above the strong resistance level of $14.5 could take place if the formation of a new government is followed three months later by presidential polls, financial analyst Walid Sassia told The Daily Star.

“If a presidential election takes place, Solidere shares could rise to as high as $16.5,” Sassia said.

The company’s weakening fundamentals are another reason why investors are shying away from the shares of Lebanon’s real estate giant, which is suffering from an overall slowdown in the sector.

Aoun said Solidere’s decision to stop distributing dividends for 2012 has pushed investors to reconsider buying the stock. “Despite the significant correlation between Solidere share price movements and political events, local instability hasn’t deterred new investors from buying Solidere shares due to attractive dividend payments ... now it is no longer the case.”

The decision to suspend dividend distribution followed a decline in the profits and liquidity available to the company.

Solidere posted net profits of $16 million in 2012, down by 90 percent compared to the previous year as revenues from land and real estate sales dropped by around 80 percent.

For 2011 Solidere paid $0.25 in cash per share for class A and B Shares plus one share for every 50 shares held by stakeholders.

For 2010, it paid $0.40 per share and distributed one share for every 30 shares held by stakeholders.

The recent sell-off was limited as some long-term investors, who have long held onto their shares in Solidere, adopted an averaging down strategy, Aoun said.

Averaging down is the process of buying additional shares in a company at lower prices than originally purchased, which brings down the average price that was paid for all shares.

“Long-term investors who have bought shares last year at $15 to $18 saw a buying opportunity after the dip in share price and added to their positions,” Sassia said.

A total of 102,573 shares of Solidere A have traded hands so far this week for a total value of $1,333,577, while 44,195 of Solidere B shares have been exchanged for a total value of $559,069.

The increase in volume of traded Solidere shares is a good sign irrespective of the conflicting reports about the government formation process, Sassia said.

“I don’t expect new investors to tap the Beirut Stock Exchange anytime soon given the domestic political and security instability but the recent activity on Solidere shares is a good sign for the market,” he argued.

A version of this article appeared in the print edition of The Daily Star on January 30, 2014, on page 5.




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