Burn­ing the tar­mac

Finweek English Edition - - Companies & Markets - SHAUN HAR­RIS

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.

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