Building giants buckle under rand strain

Posted On Monday, 29 August 2005 02:00 Published by eProp Commercial Property News
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Construction industry heavyweights Aveng as well as Murray & Roberts are expected to report a 'tough' financial year to June in the next few weeks

Construction IndustryConstruction industry heavyweights Aveng as well as Murray & Roberts are expected to report a "tough" financial year to June in the next few weeks, with several contracts being affected by the rand's gains remaining on their books.

Smaller groups are expected to report better results, having benefited from the interest rate-driven boom in small retail and residential building projects in SA over the past year.

Group Five kicked off the construction sector's annual reporting season this month, announcing a 16% rise in revenue and a 12% increase in headline earnings a share.

The group's announcement of a black empowerment equity deal pre-empts the sector's empowerment charter, which will be unveiled at a summit in October.

Group Five is only the second of the large, listed players after Aveng to have concluded an equity deal.

Construction companies that are without black partners are likely to lose out on contracts in government's promised increase in infrastructure investment.

A construction analyst who declined to be named says some government projects, though small, are starting to materialise.

The analyst says the market picture remains bleak for Aveng and Murray & Roberts.

The two construction groups are still feeling some effects of the rand's gains and the domestic market for large mining and industrial projects - which they specialise in - remains slow.

Aveng is nevertheless expected to report an increase of 40%-60% in headline earnings.

The biggest improvement is expected to come from the group's steel and cement divisions.

Its Trident steel business will have benefited from high world steel prices, and cement sales in SA grew ahead of expectations in the period under review.

The I-Net Bridge consensus forecast for Aveng headline earnings is 87c a share. Aveng reported headline earnings a share of 57c last year and 119c in 2003. Aveng will release its results on September 12.

Several analysts are concerned about a claim against Aveng by Aquarius Platinum regarding a dispute on a contract at its Marikana mine.

Murray & Roberts, which will release its results next week, is likely to have fared worse. The I-Net Bridge consensus forecast for headline earnings is 132,8c a share. The group reported basic headline earnings of 158c a share in the previous financial year.

The group said at the release of its half-year results that it hoped to complete by year-end the six problematic contracts that had bruised group profit.

The analyst says, however, that Murray & Roberts has a big order book, including projects such as the Gautrain high-speed rail link, and if its bid for Concor succeeds, Murray & Roberts will be able to participate in mid-size projects.

Smaller construction companies, such as Wilson Bayley Holmes-Ovcon (WBHO), are expected to reveal excellent results.

WBHO, which has proved to be the star performer among the country's listed construction companies, is expected to report another good set of results on Monday. In the six months to December, the group's attributable income climbed 38%.

Concor, which will release its results at the end of September, expects headline earnings a share and earnings a share for the year ended in June to rise 30%-50%.

The group has attributed the rise to "sound contract results", better-than-expected contributions from the mining and Technicrete divisions, as well as improved market conditions in the building and mining sectors.

Basil Read, whose financial year ends in December, is back in the black. The group reported a net profit of R6m for the six months to June - compared with a loss of R45m in the previous corresponding period.

The positive result provides the first tangible evidence of the turnaround promised by the group's new management, following a five-year struggle.

 

Last modified on Friday, 18 October 2013 17:27

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