Outlook at construction firms

Posted On Sunday, 23 January 2011 02:00 Published by Commercial Property News
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It has been a case of feast to famine for South Africa’s construction industry since the World Cup boom.

Construction IndustryIt has been a case of feast to famine for South Africa’s construction industry since the World Cup boom.

The industry is in trouble — and there’s no end in sight for its woes unless government-based projects, the economy and world trade start to improve drastically, according to credit insurer Coface SA.

“Access to credit, slow economic growth and cautious market conditions have resulted in poor results for the industry for 2010,” said Brian Peterson, industry analyst at Coface SA.

This week Group Five warned that its half-year fully diluted headline earnings a share would be between 15% and 25% lower. A decrease of between 70% and 80% is expected for its fully diluted earnings a share, falling to between 48c and 72c a share.

Earnings will be affected by tough trading conditions and heightened uncertainty in forecasts in the aggregates and ready-mix concrete market.

In its latest industry risk review, Coface SA says the commercial property market has been hit worse than the residential market — which is also under pressure.

The drop in revenues, cost-cutting exercises and general slowdown in the economy has led to this sector’s decline.

The World Cup was a “false hope” for many companies because it was short lived and didn’t have the intended effects.

Since the World Cup, large construction companies have had an extremely difficult time.

Infrastructure-related contracts have dried up, driving companies to look for work outside South Africa.

Coface SA cautioned that infrastructure development in South Africa must be realised “soon”, saying government support was desperately needed to boost the sector. One analyst said the current weather conditions may assist some companies as they might be called to repair damages caused by flooding.

Quinton Ivan, an analyst at Coronation Fund Managers, said the government had been quite slow in awarding new infrastructure projects, particularly where public-private partnerships were concerned.

Eskom has been criticised for not moving fast enough in awarding Medupi and Kusile power plants projects.

The residential sector is also under enormous stress as the drop in interest rates has not had the expected effect of boosting consumer demand. Coface SA said the dampening effect was due to stricter credit risk policies at banks, consumer affordability, the National Credit Act, and job losses.

This led to a decline in consumer spending as debt to disposable income has remained high.

Last modified on Friday, 28 June 2013 01:50

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