Redefine Income Fund is helping to boost Paarl’s economy through its development of Berg River Park – the town’s first fully secure industrial park

Parts of the new Mdantsane City Mall roof were blown off by strong winds on Sunday as weather experts warned of a storm approaching East London from the Western Cape.

One of the top three or four construction companies in SA within the next few years — that’s the target status for Stefanutti & Bressan (S&B), as a sequel to its impending R1,1bn acquisition of unlisted Stocks Limited. Competition commission approval is expected by the end of July.

S&B has a market capitalisation of R2,4bn. When it listed in August last year the issue was 21 times oversubscribed. After going in at R12/share, S&B has traded as high as R27 but dropped in recent months to around R15,50.

In a joint statement the companies said the merger would position the enlarged group “as a major competitor in the first-tier construction sector, with almost R5bn turnover and 8 000 employees”, and it is not seen as a cost cutting exercise.

Stocks Building Africa was launched in 2001, after the old Stocks & Stocks was taken off the exchange as a consequence of some tough times. Management bought out what was left.

S&B CEO Willie Meyburgh says S&B heard that Stocks was interested in listing again, and that S&B had convinced the company that throwing in its bulk with S&B was the smarter move.

The industry in SA is dominated by a few large companies in terms of capacity. At the top are Murray & Roberts and Aveng subsidiary Grinaker-LTA; in the second tier are Group Five and Wilson Bayly Holmes (WBHO); and the smallest of the traditional big five is Basil Read.

There is not much competition in the top two tiers, and this allows these contractors a lot of leeway when it comes to negotiating price.

“We would like to be in the same league as the Group Fives and WBHOs, and in time get to the level of M&R and Grinaker,” says Meyburgh.

“We need to upscale to be able to take on the larger projects on our own, so that we can keep more of the margin for ourselves. It will also raise the profile of the company.

“Our competitors know the name Stefanutti & Bressan, but investors and the public in general don’t really know the company or the quality of the company.”

Before embarking on this deal, S&B had wanted to diversify itself geographically. “We said we wanted to get into first-class emerging markets such as Dubai or Abu Dhabi,” says Meyburgh.

The transaction entails a swap of about 40m shares, while Rand Merchant Bank — a substantial shareholder in the unlisted Stocks — will be paid R382m by S&B for its stake.

S&B already has a strong offering. The group is well established in civils (concrete structures such as bridges) and construction. It is also exposed to mining, which is expected to continue investing in new capacity. S&B builds and maintains slimes and tailings dams, and is involved in contract mining for open pit mines.

The group also has well-established building divisions in the Western Cape and Gauteng, with a smaller presence in KwaZulu Natal — where Stocks has a strong presence.

The deal may have come at a good time for Stocks, as a slowdown in building is expected after consecutive interest rate rises.

It will be up to the Stocks team to take advantage of the Gulf area, where petrodollar-funded building activity appears to be isolated from global economic pressures. Stocks has a handful of small joint ventures operating in three of the Arab emirates, which S&B are hoping to be able to leverage off into larger contracts.

Perhaps the biggest and most valuable gain for S&B is an experienced team of managers with a strong entrepreneurial flair. Gino Stefanutti, S&B’s founder and chairman, says: “People have asked us, ‘Why are you buying a building company?’ but we say that this is mainly a construction company. For example, if you look at the work they have done at Cape Town airport, the parking lot — it’s a civil's job. These people can be returned to civil's any time,” says Stefanutti.

“The beauty about Stocks is that they are owner-managed. They were all part of the leveraged management buyout — they are just like us. We get on well. Like us they are contractors and not professional managers.”

With more bodies on board, S&B will be able to staff the stream of larger projects that it expects to win tenders on. Government has committed itself to spending about R515bn over the next three to five years, with more work likely to follow.

Meyburgh says the group has a vision of reaching turnover of R10bn within the next three years. A double-digit operating margin is also being pursued.

Though the Stocks acquisition will dilute operating margins slightly (7,2% in financial 2008), it will be earnings-enhancing. The value of the merger will only really make itself felt in February next year. At that point there will have been at least seven months of Stocks trading in the numbers.

On a forward p:e of 12 for S&B, it seems the market is missing out on yet another trick. Meyburgh says the company is going to perform better than its forward p:e would lead one to believe, emphasising that at these levels there is a lot of value to be had.

SA's three major airports will be ready by 2010 for the thousands of Soccer World Cup visitors, the Airports Company of SA said.

Geotechnical engineering specialist Esor on Wednesday reported a threefold increase in revenue to R1bn for the year to February as it benefited from commercial and government infrastructure spend and a building upsurge in Angola and Mauritius.

CEO Bernie Krone said today’s buoyant construction market was the primary driver for the group’s organic growth.

“The Gautrain continues to be a major contributor. We have R400m worth of work for the high- speed train which will be world class, with 14 months’ worth of work,” Krone said.

Of the R420m worth of projects secured, R170m was completed during the year.

“The Gautrain … is stimulating major development within the radius of its stations’ use areas, which will dramatically alter the urban landscape and further boost the construction industry beyond 2010.” The many new developments in the pipeline included high-rise offices, hotels and retail and commercial building projects.

The group has completed piling projects for Airports Company SA at the new King Shaka and Cape Town International Airports and contracts for piling, pedestrian culvert jacking and lateral support at OR Tambo International Airport.

Work on stadiums for the 2010 World Cup has been completed at Athlone Stadium in Cape Town, Moses Mabhida Stadium in Durban and Port Elizabeth Stadium.

Profit came in at R116m from R34m a year before.

Headline earnings per share jumped 240% to R115m, equating to 51,3c per share while net asset value per share increased 46% from 109,8c per share to 160,3c.

The group declared a final dividend of 20c per share for the year for a total of R49,6m.

Krone said the group was entrenching its presence in Africa, building on subsidiary Franki’s foothold in oil-rich Angola. Contracts for piling, lateral support and marine works projects were completed during the year.

Stringent cost control kept operating margins steady despite the negative effect on the group of unusually abundant December rains.

“We did see a slight decrease in margins in the final quarter of the year since excessive rain in Gauteng slowed down projects before and after our year-end break.

“However, a stricter focus on operational efficiencies and aggressive investment in plant helped keep margins on a par with last year,” Krone said.

Esor invested R147,5m in new equipment during the year.

Krone said the current year would be an acquisitive one, but the group would look only at companies that made good business sense and in the geotechnical engineering sector.

Neil Potgieter took the helm of Grinaker-LTA Building earlier this year, following the promotion of predecessor Neil Cloete to Group MD of Grinaker-LTA. Unveiling his first strategic plan for the division, Potgieter notes that Grinaker-LTA Building’s order book has changed in recent months from one dominated by private sector projects to one in which a substantial portion of work is coming from Government.  “In the past number of years, most of our work has traditionally been for private sector clients, on projects like office blocks, shopping centres and residential accommodation. Our current order book has changed - most notably in the Cape - to one in which a large chunk of our work is now being undertaken for Government.”

The division is busy with more than R1 billion of work at Cape Town International Airport, a state-of-the-art forensics facility planned to boost the country’s fight against crime, three 2010 soccer stadiums, a prison in Kimberley and a youth care centre for juvenile offenders in Bhisho.

Grinaker-LTA Building, in joint venture with Stocks Africa, is undertaking a R664-million contract to build a new integrated terminal, as well as a R375-million contract for the construction of a new multi-storey parkade, at Cape Town International Airport.
In Plattekloof, Cape Town, the division is currently busy with the construction of a new high-tech forensic facility that will enhance the SA Police Service’s fight against crime. This R359-million contract for the Department of Public Works is scheduled for completion in March 2010.

The construction of the new Kimberley medium security correctional centre is progressing well, and is on track for completion in February next year, Potgieter states. Grinaker-LTA Building is undertaking this R777-million contract in a joint venture with BEE company Keren Kula Construction. Situated on Griekwastad Road, 1 km outside Kimberley, this facility will provide accommodation for 3 000 adult male offenders.

Grinaker-LTA Building’s R230-million contract for the construction of the Department of Public Works’ new “Special Youth Care Centre” in the Eastern Cape capital of Bhisho is due for completion in May 2009. This facility is designed to accommodate 320 juvenile offenders.

The division’s work on 2010 stadiums includes the construction contract for the main event stadium, Soccer City in Soweto, the contract for the construction of the new Orlando Stadium in Soweto - which is due for completion next month (May 2008) – and the construction of Nelson Mandela Stadium in Port Elizabeth. Grinaker-LTA’s Soccer City and Nelson Mandela Stadium contracts are being undertaken in joint venture with Interbeton bv, part of the Royal BAM Group from Holland.

But while Government contracts have bolstered its order book, Grinaker-LTA Building is still keeping busy with private projects ranging from more than R1.5-billion of retail contracts and a striking new casino resort to luxury housing and golf courses in Mauritius.

The division’s retail projects include a R350-million contract to extend and refurbish the popular Eastgate shopping centre in Bedfordview, east of Johannesburg, and a R550-million contract – being undertaken in joint venture with ENZA Construction – to build a new 60 000 m2 shopping centre in Durban’s new Bridge City Precinct, which boarders Kwa-Mashu and Phoenix. Grinaker-LTA is also building two more new malls in Durban – the 35 000 m2 Westwood Shopping Centre in Westville and Philani Valley in Umlazi, and is wrapping up contracts to extend and refurbish Richards Bays’ Boardwalk Shopping Centre.

Near Krugersdorp (Mogale City), Grinaker-LTA Building is close to completing its R733-million contract for the construction of the Silverstar Casino Resort.

Rehm-Grinaker, the Mauritian construction company in which Grinaker-LTA is a shareholder, has an order book in the region of R600 million, Potgieter says. This includes work on several projects falling under the groundbreaking new Mauritian property ownership system, the ‘Integrated Resort Scheme’ (IRS), which is allowing foreigners to purchase property in Mauritius for the first time. Rehm-Grinaker’s contracts include an 18-hole championship golf course designed by Ernie Els at the Anahita resort. This development is set to be the largest and most extravagant IRS development on the East coast of Mauritius. It also aims to be one of the top five developments of its kind in the world in the next five years, amid tough competition from regions like Dubai.
 
With its growing workload, Grinaker-LTA Building has also doubled its people resources, and Potgieter says he currently has in excess of 4 700 people under his leadership. He has cited safety and skills development as strategic priorities going forward, and notes that the shortage of skills in the industry is a challenge. “Training is a critical focus area, and we have numerous learnerships, apprenticeships and bursary schemes in place to begin to address the current skills deficit. An in-house training centre is operating in KwaZulu-Natal and provides training in various construction disciplines such as carpentry and brick-laying.”

Potgieter believes one of the greatest challenges currently facing the building industry is the power outages. “The power crisis could cause significant delays and disruptions on new developments. In most cases, we have stand-by generators on our sites, to minimise downtime, but this is a concern.

“The upside, however, is the new business to be picked up in the construction of new power stations. As part of the multi-disciplinary Aveng Group, Grinaker-LTA Building is well-placed to capitalise on this,” he concludes.

Civil engineering contractor Esor has scored more than R500m from government's increased spending on infrastructure for the 2010 Soccer World Cup.

CEO Bernie Krone said new contracts, including the Gautrain project and the upgrading of the OR Tambo Airport, had swelled the company's order book by R580m, putting Esor firmly on track to achieve targeted growth for the new financial year starting this month.

"We intend leveraging our new directors' network and industry knowledge to drive growth and position the group as a favourite contender for infrastructure contracts," Krone said.

The group has to date tendered for Gautrain contracts to the value of R365m, of which R80m has been secured in two piling projects.

"We are still awaiting a decision on the remaining tenders and are confident of our prospects in this regard," he said.

Other new contracts include R80m worth of contracts for the Airports Company of SA, in line with its R5,2bn intended outlay between 2005 and 2009. Esor has already completed the upgrades at the OR Tambo International Airport and is now extending the Cape Town International Airport.

"Following Esor's completion of the Ushaka Pier marine project, the group is now aligned with the preferred bidder for the Ushaka airport in Durban," said Krone.

The Airports Company of SA (Acsa) has projected expenditure of R2,7bn for infrastructure improvement and expansion for the period 2002-2007, Acting Transport Minister Jeff Radebe said yesterday.