Strong rand batters construction heavyweigths

Posted On Thursday, 23 September 2004 02:00 Published by eProp Commercial Property News
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WBHO and Group Five emerge as star performers, but bigger companies take a hit from dodgy contracts in Africa.

Construction IndustryThe construction industry is wrapping up a glum reporting season, with the strong rand and problematic roads contracts elsewhere in Africa hurting the industry's heavyweights.

Wilson Bayly Holmes-Ovcon (WBHO) and Group Five have emerged as the star performers, mainly because they have benefited from increased activity in small projects, such as residential and retail, on the back of lower interest rates.

WBHO posted a 34% rise in income before tax and Group Five, also benefiting from its diverse activities, reported a 10% increase in profit before tax for the year ending June.

They are the only large listed groups in this sector whose share prices have made substantial gains since the start of the year.

Group Five has moved from a low of 835c to about R11,50 yesterday. WBHO has risen from a low of R16,40 to trade at R19,80.

The two companies' performance has been a far cry from that of sector heavyweights Aveng and Murray & Roberts, which suffered from a dearth of large capital projects such as processing plants at mines.

These projects have been put on hold due to the rand's gains.

The currency, which gained 22% in the year to June, also had a direct negative effect on the two heavyweights' substantial earnings from foreign contracts.

Aveng's income before tax crashed 75%, and Murray & Roberts reported a 25% drop in earnings before tax.

Three loss-making roads contracts were responsible for much of the decline in profits at Aveng.

Murray & Roberts' share price has fallen to R12 from a high of R15,35 earlier this year, while Aveng's has dropped to 850c from a high of 890c.

Concor, another of the six largest listed construction companies, said income before tax fell 26%. The group blamed the strong rand for poor construction demand for large capital projects, but it also had some loss-making contracts. Concor's share has moved from a high of R11 this year to about 810c yesterday.

Only Basil Read is yet to report for the season, and this would be for the six months to June. The group has already warned, however, that earnings would be at least 30% lower over the corresponding six months last year.

The French-controlled company's share price has crashed, ending at about 85c yesterday from a 240c high earlier this year.

Basil Read said it would publish its results on September 29.

The tough conditions over the past financial year mean that the construction industry is not hugely optimistic about the coming financial year.

"Most of them are choosing contracts more carefully now they can't take on large high-risk contracts, especially outside of SA, with the rand at current levels," said a construction analyst, who declined to be named.

Several companies have reduced activities outside of SA. Aveng's foreign revenues, for example, have dropped to about 35% of total revenue, from about 41% before. There were positive indications for increased spending in the public and private sector in SA, but this was expected to happen gradually.

Construction companies were hoping that capital projects that have been shelved would come back on line over the next year, as clients such as mines adjust to the stronger rand.

Government infrastructure spending was also set to increase in line with its aim to lift gross fixed investment from about 16% of gross domestic product to about 25%. Large infrastructure projects have failed to materialise to date, however, due to delivery constraints within government.

Nicky Weimar of Nedcor says, however, that "quite a few" water projects are planned and some tenders were expected next year.

Most construction companies also expect to benefit from capital spending in the run-up to the Soccer World Cup 2010. This would largely consist of the construction of new stadiums and the upgrading of others.

The contract for the highspeed Gautrain is expected to be awarded around the middle of next year.

The project, with an estimated cost of at least R6bn, is not expected to have a large effect on the construction industry next year, but will do so only in the following years.

Aveng and Murray & Roberts are members of two shortlisted consortiums to build the rail link.


Last modified on Monday, 21 October 2013 19:38

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