Burning the tarmac
RAUBEX GROUP AN UPBEAT TRADING update last week should warm the hearts of shareholders. Raubex, the JSE main board construction company, expects earnings per share and headline earnings per share to be between 65% and 85% higher when results are published on 10 November. However, the expected impressive increase in earnings isn’t that surprising. In its maiden full year results since listing on the JSE 18 months ago Raubex more than doubled its earnings per share and headline earnings per share. There might be some low base effect here, as Raubex has been growing rapidly – both through acquisitions and organically. But it’s hard to argue with such robust earnings figures.
The question for investors is whether this growth is worth paying a 17,5 times earnings multiple. The forward multiple is a more modest 11,2 times, but that’s still quite demanding, with a number of blue chips languishing in single digits. The dividend yield of 1,9% isn’t inspiring, though at least Raubex pays a dividend, unlike many recent listings.
Investors need to take a closer look at what Raubex does and how it’s placed. The main business is road building and road rehabilitation, a sector where there’s surely going to be much demand and business for some time to come as Government gets serious about fixing up SA’s infrastructure. Raubex won three major road contracts from the South African National Roads Agency in August, with a combined value of R1,15bn.
However, the company’s diversified beyond roads; it’s also getting involved in infrastructure development, such as bridges and supplying aggregate to the construction industry. Raubex emphasises it doesn’t build large commercial buildings or stadiums: its roots, going back to 1974, are in civil engineering construction.
All of which are parts of SA’s construction industry where the strong growth is probably going to be.