State power utility Eskom is often criticised for its seeming unwillingness to embrace alternative and renewable energy platforms in seeking ways to align its production with fast-increasing demand

South Africa’s R16bn investment in next-generation pebble bed modular reactor technology does not seem to have born fruit

Friday, 07 December 2007 02:00

Moving and shaking

Super-bullish conditions in infrastructure are supporting consolidation and organic growth in the sector, and it seems there are still attractive returns to be had.

Construction IndustryRoads & civils specialist Raubex, which listed in March this year, has made its largest move to date, gobbling up peer company B&E in a R514 million deal that will allow the company to bulk up capacity.

Aneshrin Pillay, an analyst with Afri-focus Securities, says the deal is substantial: "It's in line with their strategy to enhance their materials business and it looks to be earnings-enhancing and margin-enhancing."

B&E will slot in nicely with Raubex's aggregates and crushing operation, Raumix. The market appears to like the deal, with the share moving at least 4% on the announcement.

However, says Pillay, a deal this size does eat into the company's cash resources, and this is compounded by the fact that it has already shelled out about R160 million on capital equipment.

The transaction will be funded through a combination of shares and cash, which will see B&E receive about 9m shares (worth about R295m) and R218m in cash.

Rowan Goeller, an analyst with Macquarie First South Securities, says the transaction grows the company's fleet and skills base, and will allow it to take on more work, since one of Raubex's strengths is to "move their plant around and do crushing work for the other contracts they have".

Goeller says B&E is being bought at a historic price:earnings ratio of about 10, based on the past six months' financial performance.

According to I-Net Bridge, Raubex is trading at almost three times the p:e of B&E. The only concern raised over the deal is the dilution to shareholders, but if the deal delivers more profitable growth, shareholders aren't likely to notice.

Another company that has been moving to strengthen its market position is construction company Sanyati. It continues to expand beyond its roots in KwaZulu Natal, and with its R220 million acquisition of the Meyker Group it is now active in seven of the nine provinces.

In the six months to end-August, Sanyati acquired construction and civils companies Ruthcon and GEM. Before that it bought Hibiscus Asphalt and Mega Pile.

The group will be paying for the Meyker transaction in tranches over the next four years. The transaction is being funded through cash and shares (about 44 million will be issued).

Sanyati CEO Rick Jackson says it's likely the group will make one more large transaction so as to meet its 2012 revenue target of R2,7 billion.

Another company making moves is Protech Khuthele, which this week announced the acquisition of two ready-mix operations for R79 million.

Protech is primarily a fast-track bulk earthworks company, but chief financial officer Nellis Wolmarans says it also does some civils work.

This requires a fair amount of concrete and readymix, which the company has had to rely on suppliers for.

"In the past we have called readymix suppliers and they don't arrive the next day or the day after. Even if we place huge orders we can end up waiting for weeks, which holds us up," says Wolmarans.

He says Protech has in the past moved to make itself more efficient by diversifying its business. "We started our geotechnical laboratory for the same reason, because the labs we were using weren't keeping pace with us."

The company will also be able to diversify the service offering on contracts, as it will now have the plant and skills to take on more civils work, such as culverts and drains.

Protech CEO Gerald Chapman says the six plants the business is acquiring will boost earnings, which "should be handsomely compounded in the months and years ahead, given especially the construction industry's rapid growth".

In related news, M&R said shareholders could look forward to earnings per share that would be between 40% and 50% higher for the six months to end-December and the year to end-June 2008, than in the previous comparable periods.

Proceeds from disposals of noncore assets are likely to lift these respective performances by as much as 110%.

M&R also said it had secured a seven-year, R7 billion contract for Eskom's first new coal-fired power station, Medupi, involving steel fabrication, erection and mechanical installation.

Goeller says it is likely that construction companies will continue to deliver outstanding performances "for a while yet", as government's spending was only beginning to have an impact now.

He also says all the indications are that the private sector is starting to make available the infrastructure spending that had previously been put on hold.


Monday, 30 July 2007 02:00

Boom time builds up to beyond 2010

Government and private sector infrastructure investments are expected to secure the boom in the construction and building industries until well after the 2010 soccer World Cup, according to industry leaders.

Brian BruceThey said the government's decision to go ahead with a R400-billion infrastructure programme, an even bigger commitment by the private sector and economic growth rates well above 5% a year would buoy the industries and drive the economy.

Brian Bruce, chief executive of Murray & Roberts, predicted the boom would continue long after 2010 and well "into the teens of the 21st century".

He cautioned, however, that there might be some ups and downs in the industry during this period.

But, despite this caution, construction companies are flocking to list on the JSE's alternate exchange, which facilitates listing of small companies.

Since AltX was established almost three years ago, 14 of the 50 companies listed are related to the building and construction sector with interests in home improvements, heavy construction and building materials and fixtures.

Among the bigger groups are Esor, Sanyati Holdings, Afrimat and the Raubex Group. The total market capitalisation of these companies this week was R20.6-billion, according to an AltX spokesman.

And Stefanutti & Bressan, with annual turnover of R1.7-billion, plans to list on the JSEs' main board on Friday after raising up to R465-million by placing 35 million shares. A limited offer of a further 11.5 million shares will be offered to vendors.

The company believes that revenues will grow to R2.5-billion in 2008. In the year to February, the group earned a net profit of R67.2-million, after the cost of BEE involvement, and expects this to grow to R115-million in 2008.

The group has a 15% BEE involvement through Mowana Investments.

Chairman and co-founder of Stefanutti & Bressan, Gino Stefanutti, said the construction industry was experiencing unprecedented growth and that there was "a positive picture of long-term growth for the industry".

Last month, the FNB Civil Construction Confidence Index, compiled by the Bureau for Economic Research recorded another increase.

Cees Bruggemans, chief economist at First National Bank, said that the figure reflected "very favourable business conditions". It is reported that the industry had grown by 13% a year since 2003.

The SA Federation of Civil Engineering Contractors noted that the number of people in the construction industry had risen to 114 000 in the first quarter of this year .

But, the FNB Index found , a shortage of skilled labour was affecting construction activities and impinging on completion times. Training would have to be accelerated to contain construction costs as a result of higher wages .

Power generation, with Eskom looking at another nuclear power station, will also help keep activity high. Power generation infrastructure development will begin in earnest next year and this is a 25-year project.

Transport, water and sanitation, schools and hospitals will need to keep pace with the macro- economic growth, said Bruce.

The attractiveness of the building and construction sector has attracted an unsolicited bid for building materials supplier Iliad Africa from a consortium led by Absa Capital. Talks are continuing.

Last week Iliad said it had acquired the Gauteng-based, R220-million-a-year Thorpe Timbers . Recently, the group bought USM Building Supplies and Lumber City in Lephalale (Ellisras). The combined acquisitions should add R350-million to revenues.

South Ocean, the Johannesburg-based manufacturer of building wires, has spent R10-million on the first phase of its expansion plans by purchasing new machinery that will increase its capacity by 10%.

The company, which was listed in February, has begun the second phase of expansion at a cost of R30-million for new machinery, buildings and working capital, which will add 15% to capacity.

The company recently acquired Radiant Lighting for R485-million, which expands its operations into decorative lighting, lamps and bulbs and electrical products.

Black empowerment group Afrimat announced two weeks ago that it had purchased two quarries and a concrete block-and-brick factory in KwaZulu-Natal, its second acquisition since listing in November. This brings its number of quarries to 22 and brick factories to nine.

Tuesday, 15 May 2007 02:00

Beyond the infrastructure challenge

There are some broader implications of South Africa’s groaning infrastructure for investors in general and Property Unit Trusts (PUTs) in particular

The public enterprises department has taken the extraordinary step of releasing a confidential report on the state of SA’s electricity market which paints a bleak picture of the prospects for power supply in the next few years.

The revival of Johannesburg’s inner city has seen an escalation in the value of property, making it more difficult for government and non profit organisations to provide much needed social housing for low-income earners.

Thursday, 07 September 2006 02:00

Eskom loses fee fight

Agents see growing trend of large businesses to avoid paying their full commissions

SHARES in the construction sector have soared over the past two months, buoyed by foreign investor optimism on the prospects for SA’s infrastructure development.

Thursday, 07 July 2005 02:00

Infrastructure boom for SA?

Major capex projects to be good for listed companies

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