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Eskom has invested millions in renewable power, specifically in research in this ever expanding field.
It appears that the housing slump has bypassed university towns like Stellenbosch, Grahamstown and Potchefstroom on the back of strong growth in demand for rental stock.
As we near the end of the year, the building industry reaches one of its busiest periods. Never is the saying 'under promise and over deliver' more true than at this time.
The property industry in general is well known for its savvy businessmen, hard-nosed brokers, and dedicated engineers – all focused on completing large scale, complex projects. It’s for this reason that managers and leaders need to recognise the style in which they lead their teams in order to create high performing teams that work together effectively towards achieving a common, successful goal
The FNB Building Confidence Index measures the business confidence of all the major role players and suppliers involved in the building industry such as architects, quantity surveyors, contractors, sub-contractors, wholesale and retail merchants, and manufacturers of building materials.
The index is compiled quarterly from the building, manufacturing, retail and wholesale opinion surveys undertaken by the Bureau for Economic Research (BER) at Stellenbosch University. The BER business survey in the building industry was conducted between May 5 and June 6, 2008.
The index declined from a level of 66 in 1Q 2008 to 50 in 2Q 2008. The latter level compares with an index value of 88 in the corresponding quarter a year ago. The decline in business confidence over the past quarter was due to a moderation in all categories, except in the case of quantity surveyors where confidence increased by 5 index points. The latter development can possibly be related to the fact that second quarter business conditions turned out somewhat better than expected by the respondents at the time of the previous survey. However, an analysis of other survey indicators shows that quantity surveyors are also starting to experience the moderation in overall building activity.
The second quarter growth in building activity in this sector of the building industry has hit a brick wall and was well below expectations. For example, whereas a net 39% of respondents expected a weakening in Q2 2008, the latest survey results revealed that in fact a net 69% experienced a decline in workloads. Possible reasons for the sharply weaker demand for residential building were, amongst others, rising interest rates and building costs, tightening of credit standards by banks, the lagged impact of the introduction of the National Credit Act in 2007, a deterioration in consumer confidence and rising food and fuel price inflation that is eroding the buying power of consumers. The weakening in demand levels resulted in a sharp rise in tendering competition. It was therefore not surprising that a net 68% of respondents to the second quarter survey reported that the profitability of their businesses deteriorated notably.In view of the sharp deterioration in the tempo of residential building activity, job shedding took place. Indeed, a net 44% of the respondents to the survey reported that the number of people employed was below that of a year ago. As far as business prospects for Q3 2008 were concerned, the view was expressed by respondents that business conditions were likely to remain unfavourable, but no major further deterioration was expected by the respondents to the survey.
Business confidence of non-residential building contractors moderated further from an index value of 78 in Q1 2008 to 70 in the second quarter. In Q4 2007 the index stood at 92. Respondents to the BER survey reported that business conditions turned out well below expectations. For example, whereas a net 9% of respondents expected an deterioration in the growth in building activity at the time of the previous survey, Q2 2008 results indicated that a net 37% of non-residential contractor participants experienced a decline in activity. The moderation in the demand for building work translated into a relatively sharp increase in the intensity of tendering competition. Given the foregoing development, margin compression ensued with the result that the overall profitability of the respondents to the survey deteriorated. Growth in building employment remained fairly stable during the survey quarter, but respondents expect job shedding to occur during Q3 2008. Regarding the prospects for 3Q2008, Loos said that the survey participants do not expect major changes in business conditions.
FNB's building confidence index, which measures the business confidence of all the major role players and suppliers involved in the building industry, declined to 66 points in 2008's first quarter, compared with 86 points in the last quarter of 2007.
FNB chief economist Cees Bruggemans said in statement that the deterioration of the index was the result of the business confidence of all subcategories comprising the index declining during the period.
The confidence of building material retailers, manufacturers, wholesalers and contractors declined the most.
The business confidence of residential building contractors dropped from 76 points in the last quarter of 2007 to 60 points in the first quarter of the year, and Bruggemans stated that the growth in building activity in this sector disappointed.
The survey said that some 21% of respondents had expected a weakening in the first quarter of 2008, but that the latest survey revealed that in fact a net 39% experienced a decline in workloads.
"The tightening in demand conditions and increasing tendering competition currently being experienced in the residential sector continues to exert downward pressure on profit margins. It was, therefore, not surprising that a net 46% of respondents to the survey indicated that the growth in profitability of companies was below that of the same quarter a year ago," Bruggemans said.
With the demand for residential buildings waning, the reduction in workloads forced respondents to further reduce the number of people employed. Nevertheless, the availability of skilled labour remained a noteworthy constraint, hampering the building operations of respondents.
Respondents also indicated that they were expecting business conditions in the residential sector of the industry to remain "unfavourable".
Meanwhile, business confidence of nonresidential building contractors "rather unexpectedly" also declined relatively sharply, Bruggemans said.
The index fell to 78 points in the first quarter, compared with 92 points in the fourth quarter of 2007.
Respondents to the survey reported that business conditions turned out well below expectations.
At the time of the previous survey, about 2% of respondents were expecting an improvement in the growth in building activity, but first quarter results revealed that 20% of nonresidential contractor participants experienced a decline in activity.
"In view of the weaker demand conditions experienced, competition in tendering edged up sharply. As a direct result, margins came under pressure and the growth in profitability of nonresidential contractor respondents deteriorated notably. This trend is expected to continue in the coming quarter," Bruggeman said.
Looking ahead, he said that the survey's participants did not expect a reversal in current business conditions and they anticipated the profitability of companies to deteriorate further.
The index is compiled quarterly from the building, manufacturing, retail and wholesale opinion surveys undertaken by the Bureau for Economic Research (BER) at Stellenbosch University. The BER business survey in the building industry was conducted between February 4 and March 3.
As expected, in Finance Minister Trevor Manuel’s budget, an enormous amount of money is to be spent on infrastructure.
As I mentioned yesterday, there’s no shortage of money to help alleviate poverty and develop our economy — the problem is to manage the resources efficiently.
For construction companies — as I cited from Group Five’s results for the half-year ended December 31 — a fundamental investment problem is the difficulties in managing the awarding and implementation of contracts.
In due course, the infrastructural plans in the budget will be implemented and Group Five and other construction companies will benefit from these.
“In due course” is, of course, an elastic period of time. Even so, there is some solid evidence that the construction sector is in a growth phase that could last at least beyond 2015.
In its 2007 financial year-end (June 30) presentation, Group Five showed a chart of the market outlook for the construction sector. The chart was sourced from Stellenbosch University’s Bureau of Economic Research. The figures used were of real (inflation excluded) investment in construction works.
The chart confirms that the sector is in a five-year growth cycle. In 2003, total construction work was valued at about R25bn, which in real terms was below the figure in 1991 when it last enjoyed a growth phase.
In 1981, the peak year of previous state infrastructural growth, total construction work amounted to R40 billion. Only last year was that figure again reached.
Stellenbosch’s bureau forecast takes this figure to more than R65 billion by 2015, of which the public sector is expected to contribute R50 billion.
Five years ago, Group Five’s share price was about R5,30. Its historic price:earnings ratio then was around five, and its share price trend was boringly flat. But as the cycle sector progressively improved, the company’s turnover and profits rose and the share price responded positively.
In the 2003 financial year the company’s headline earnings per share were 120c. Last year they were 283c. The share price is now at about R51,50 — about 10 times the 2003 figure — but the historic price:earnings ratio is more than 17.
Murray and Roberts (M&R), the construction counter we hold in the Private Investor portfolio, is on an historic price:earnings ratio of more than 20. Rather than believing M&R is overpriced, there is good reason to believe that Group Five is underpriced.
My guesstimate of its forward fully diluted headline earnings per share for the financial year ended June 30 this year is about 330c, giving the share a forward price:earnings ratio of about 15,5 — a bit low relative to earnings growth expectation of about 30% 40% over the medium term.
Group Five also looks an interesting buy on the technical indicators. The share price is still in a bear trend, but the price has broken through all its moving averages. It has a count to R58, a less probable count to R63 and its resistance is around R52.
Most people think that property development is an easy way to retire young but there is many a slip between bold and sold as scores of self-styled and even professional developers have discovered on the long and bumpy road to property riches.
Well-known property economist and vice chairman of the South African Property Owners' Association (Sapoa) Western Cape region Wendy Hartshorne has been appointed special consultant to Collins Commercial Properties' recently established Private Client Investment Division (PCI).