Pace-setting WBHO falls short

• Building and civil engineering unit is main detractor from performance

WBHO, SA’s largest construction company by market capitalisation, was streets ahead of its competitors in the financial year to June, but this was not enough to impress the market. The company, which operates in SA, Australia and the UK, saw its share price fall 4.67% to R142.

WBHO, SA’s largest construction company with a market capitalisation of R8.5bn, was streets ahead of its competitors in the financial year to June, but this was not enough to impress the market.

The company, which operates in Africa, Australia and the UK, saw its share price fall 4.67% to R142, its largest drop in just over a week, despite growing its headline earnings per share 8% to R14.15. Its share price has now fallen nearly 8.65% in 2018.

Although it remains the most profitable construction stock, its headline earnings per share were still 10% behind market expectations.

“This is a disappointing result in that it came in roughly 10% behind our expectations,” said Mish-al Emeran of Electus Fund Managers. “We wanted more and the results can only be seen as good if they are judged in the context of a local construction environment that has deteriorated rapidly and which has seen the failure of competitors.”

Two other construction groups, Basil Read and Esor, filed for business rescue this year, while Aveng is struggling for survival after Murray & Roberts dropped a proposal to acquire the group.

Group Five warned last week that its headline loss per share could widen as much as 70%.

WBHO CEO Louwtjie Nel said the main detractor from the company’s performance was its building and civil engineering division, which saw revenue and operating profit decline by 10% and 14%, respectively.

The division’s order book was also under pressure due to a weak economy and a lack of new demand for construction projects in local building markets, he said.

But the group’s Australian operations had helped with revenue in that market, having risen 18%, more than making up for a sluggish performance in SA, where revenue dropped 7%.

WBHO’s group net profit rose 9.4% to R843.4m, and group revenue rose 10% to R35bn. Australia accounted for 63% of WBHO’s total group revenue, and SA accounted for 30%. The balance came from the rest of Africa and the UK.

Nel said currency effects had played a role and the group gained R128m, of which R80m was related to cash balances held in the UK. Accounting changes had also helped pad WBHO’s results.

“Earnings per share have been positively affected by the accounting treatment required by International Financial Reporting Standard 3 in respect of the group’s increased interest in the Byrne Group, which increased from 40% to 80% on June 18 2018,” the group said.

The company declared a final dividend of R3.25 per share, bringing the total for the year to R4.75, which was unchanged from the prior year.

Emeran said that despite the disappointing results, the company remained the “best construction stock on the JSE” and it had the strongest investment case, which had been expressed in its financial results.

“Its balance sheet is healthy and cash generation was strong at R1.4bn compared with R1.1bn previously. Its cash balance increased by R450m to R6bn, the business is well capitalised and it faces relatively less financial risk versus other listed peers,” he said.

“The challenges in the local construction market are well documented, but we think that WBHO is well placed in terms of financial strength to benefit and increase market share when conditions improve,” he said.

HEADLINE EARNINGS PER SHARE WERE 10% BEHIND MARKET EXPECTATIONS