Cash crunch puts squeeze on Esor

Struggling construction group Esor could soon be facing a moment of reckoning in its 13-year history as a listed entity, with cash constraints casting a shadow on its status as a going concern.

Struggling construction group Esor could soon be facing a moment of reckoning in its 13-year history as a listed entity, with cash constraints casting a shadow on its status as a going concern.

Esor is being squeezed on several fronts, including costly contracts that dragged it into a steeper loss in the year to endFebruary, in another example of the struggling construction and engineering industry.

Basil Read has filed for business rescue, while Aveng is the subject of a takeover bid by competitor Murray & Roberts, signalling that the industry may be due for consolidation. The government has cut spending on infrastructure to maintain fiscal discipline, leaving a gaping hole for companies that rely on it as a source of revenue.

“The construction sector is one of a cyclical nature,” IG SA senior market analyst Shaun Murison said. “Following the 2010 World Cup, we have seen the sector going through a contractionary phase,” he said.

Esor, which operates in SA and other parts of the continent, racked up a loss of R306.9m in the year to end-February, from R140m previously. The other factors it said weighed on its performance included delays in contract awards, postponements and cancellations on existing work, work obstructions on certain contracts, slow payments and bottlenecks on all public-sector projects.

Esor had a cash-flow and liquidity crunch in the review period, which necessitated a R42.5m bridging loan by major investor Geomer Investments.

Markets took notice, pushing the share price down as much as 40% to record lows of just 6c on the JSE over the past week, the worst weekly percentage drop since May 2014.

Capicraft Investments portfolio manager Drikus Combrinck predicted further consolidation in the industry, arguing that the boom of 2010 had resulted in spare capacity.