Group Five, South Africa's fourth-largest construction company by market capitalisation, has been accorded strong first time credit ratings by international rating agency Global Credit Ratings (GCR).

The ratings, of A1 (single A one) on the short term and A (single A) on the long term, reflect the group's strong financial and operational position.

This follows a significant restructuring over recent, in terms of both operational structure and financial mix, which has seen the divestment of certain non-core manufacturing interests and the group report a net cash position of 213 million rand in 2006. In this regard, although the recent Quarry Cats acquisition for 750 million rand will drive a rise in debt levels (through a Domestic Medium Term Note Programme), the group is expected to remain in a net ungeared position going forward.

In particular, the ratings embody the group's established position in both the South African and broad African construction industries, as well as its growing presence in Dubai.

Moreover, according to GCR senior analyst Jackie Swan, the rating was enhanced by the diversification of earnings provided by the group's toll road and aligned manufacturing interests.

Swan further noted the buoyant prospects for the domestic construction industry, underpinned by massive infrastructure spend over the coming decade.

Notwithstanding the above, the group remains exposed to the inherently cyclical nature of the construction industry, whilst growing over-border revenue (albeit unchanged as a proportion of revenue) has increased its susceptibility to the volatility of the rand.

Furthermore, the materials and skills shortage evidenced in the local construction imply added risk to the group, although Group Five's efforts to mitigate these conditions (including the Quarry Cats acquisition) were considered.

I-Net Bridge

Publisher: I-Net Bridge
Source: I-Net Bridge