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Positive mood after clean-up

Posted On Friday, 30 September 2005 02:00 Published by eProp Commercial Property News
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The stock of construction group Murray & Roberts has recently tested the R20 level, which could signal the return of the group to giant status

Brian BruceThe stock of construction group Murray & Roberts (M&R) has recently tested the R20 level, which could signal the return of the group to giant status. Of course R20 is just a number and does not represent significant value creation. But it is an important psychological level, taking into consideration the history of the share.

M&R hit a record high of R28,50 in 1996. But then the decline of fixed capital investment in SA sent shares of construction companies tumbling. M&R shares fell to a low of 190c in 1999 and the group was sliding into the red.

Current CEO Brian Bruce was brought in to stop the rot and launched a six-year restructuring programme. The stock recovered steadily and now trades at R19,20, which gives it a p:e ratio of 13,7 against the sector's 14,9.

The level of the share could represent three things, says Bruce. "The market was pleased with the latest results; it has taken a positive view of our black economic empowerment deal; and it is bullish about the prospects of the construction industry," he says.

Bruce has been busy over the past five years cleaning up, but the level of corporate activity has reached new heights over the past few months. Evidence is in the latest results, which reflect some defining transactions.

They include the sale for about R900m of an interest in transport and logistics group Unitrans. The company accounted for a significant portion of M&R's profits, but the sale delivered a stronger balance sheet, which was used to expand M&R's international footprint. The group increased its stake in Australia-based engineering group Clough to about 29%. It bought out minorities in global mining contracting operation Cementation and it acquired 80% of building materials operation Oconbrick for about R96m.

The latest results show exceptional losses of R144m from the liquidation of tank container manufacturer Consani, and R47m from the sale of management services company Booker Tate. This is partly the reason for the 10% decline in headline earnings from 144c to 155c. But revenue for the period increased 27% to R10,7bn, while operating profit rose 29% to R543m. The group declared an unchanged total dividend of 45c.

This year the group launched a bid for local competitor Concor. It has made a cash offer of R22,30/share.  If that succeeds, M&R will overtake its main competitor, Aveng, as the largest construction group in the country.

All this means Bruce will be kept extremely busy, even after concluding his six-year programme. The way ahead could prove complicated as he tries to bed down all the acquisitions.

The integration of Cementation could be particularly challenging, as it has increased M&R's employee numbers from about 12,000 to more than 20,000.

That may be why the group wants to maintain Concor as an independent entity if its takeover attempts succeed. "We have just dealt with our consolidation, and we need that process to settle down and create value before we can even consider integrating Concor into M&R," says Bruce.


Last modified on Friday, 18 October 2013 16:14

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