Small is the new big in sluggish building sector

Posted On Friday, 18 March 2005 02:00 Published by eProp Commercial Property News
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Small was big during the construction sector reporting season that ended last week

Construction IndustrySmall was big during the construction sector reporting season that ended last week.

Smaller stocks such as Wilson Bayly Holmes-Ovcon (WBHO) and Group Five made gains as they are positioned to capitalise on the boom in small building projects, mainly residential and retail, led by low interest rates.

Big brothers Aveng and Murray & Roberts suffered from problem contracts outside SA, and sluggish demand for heavy construction projects in SA as the strong rand continued to erode industrial groups' profits.

But much of the problems of French-controlled company Basil Read appear to be internal.

SA's largest construction company, Aveng, did well in the residential and retail boom, through its ownership of steel supplier Trident and almost half-ownership of cement supplier Holcim. Improved sales in its cement and steel and allied divisions helped the group report a 55% increase in headline earnings a share in the six months to December.

But Aveng's construction work, the group's core activity, is still operating at a loss.

SA's second-largest construction company, Murray & Roberts, chased after projects in the booming small-projects market, but failed to secure them. The company posted a 10% decline in headline earnings a share.

One of the features of the reporting season was the effect of problem contracts on the profits of SA's two largest construction companies.

Both Aveng and Murray & Roberts have admitted that much of their woes came from badly selected contracts. They have put in place improved risk management processes.

WBHO - which was the star performer among the listed construction companies - attributed its success partly to being "very risk-alert" as well as ensuring "that the money is there to be paid".

WBHO's revenue almost doubled to reach R2,2bn in the period, compared with R1,2bn in the corresponding period.

Income after tax jumped 87% to R72m from R38,5m, while headline earnings grew 18% to 120c a share.

Basil Read is hoping to start turning around under its new South African management. In the year to December, the company posted a R40m net loss compared with a R40m profit in the year before. The company was also troubled by a problem contract in Namibia.

All of SA's large construction companies were affected by the strong rand - and by the seemingly never-ending wait for government to start consistently delivering large projects.

Most construction share prices rose steeply over the past year after government promised to step up fixed investment to 25% of gross domestic product from 16%.

The sector is still waiting for substantial government contracts to start materialising, and as it does so, it continues to retrench hundreds of people who may be needed again when government starts fulfilling its promises.

Murray & Roberts retrenched about 500 people in the six months to December.

Aveng and Concor's share price almost doubled in value over the past year.

Group Five and WBHO have made considerable gains over the year, and have delivered consistent share-price gains over the past few years.

Murray & Roberts gained only R1 in the past year. And Basil Read's share has dropped more than half, from R2 to 80c.


Last modified on Saturday, 19 October 2013 13:19

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