Shuaa Capital has downgraded Drake & Scull International to 'hold' and cut its fair value on the stock by 21 per cent and said the Dubai contractor's backlog growth and expected future earnings remain overshadowed by rising regional risks.

The medium-to-high-risk-market exposure accounts for 13 per cent of Drake's backlog at the moment, but this could increase in the coming days, Shuaa was quoted as saying in a report in our sister newspaper Gulf Daily News (GDN).

While Drake's operations span 16 countries, including 10 Middle East and North Africa markets, Egypt and Oman account for the bulk of countries currently facing political uncertainty.

Drake, which specialises in mechanical, engineering and plumbing businesses, offers the highest backlog/sales ratio within the brokerage's coverage space and the longest future earnings visibility. The company has a 2011 project backlog of Dh7.6 billion ($2.07 billion).

The brokerage, which previously had a 'buy' rating on Drake, cut its fair value on the stock to 0.928 dirhams from 1.120 dirhams.

Key risks include intensified political uncertainty spreading to higher-value Drake markets diminishing new contract awards and leading to major contract cancellations, Shuaa said. This could reduce its fair value on the stock to 0.49 dirhams.