Build­ing its own road

Finweek English Edition - - Companies & Markets - SHAUN HAR­RIS

THIS COM­PANY IS well placed to take ad­van­tage of the growth ar­eas in construction and in­fra­struc­ture spending. It spans four di­vi­sions: earth­works, where Gov­ern­ment is just start­ing to spend on new roads and up­grades; plant hire; geotech­ni­cal lab­o­ra­tory and sur­vey­ing ser­vices; and readymix con­crete.

But more im­por­tant is what man­age­ment calls its abil­ity to quickly switch fo­cus be­tween dif­fer­ent sec­tors in line with chang­ing mar­ket dy­nam­ics. So as res­i­den­tial build­ing ac­tiv­ity has started to slow down, Protech has moved its at­ten­tion to State and min­ing in­fra­struc­ture spending, where it says that con­tin­ues un­abated.

Though earth­works are its big rev­enue earner (R281,2m at the in­terim) there’s also use­ful di­ver­si­fi­ca­tion be­tween plant hire (R88,6m) and ready-mix con­crete (R62,5m). That spread of busi­ness came through in im­pres­sive in­terim re­sults. But when you get down to the bal­ance sheet, things start looking a lit­tle scary. Debt has in­creased to R226,6m, giv­ing Protech gear­ing of 105%.

Those debt lev­els aren’t en­cour­ag­ing in the cur­rent cli­mate, where there’s some con­cern about small cap com­pa­nies be­ing over-bor­rowed. How­ever, while con­ced­ing that gear­ing is high, Protech says it’s in line with its busi­ness model and pol­icy of run­ning only new equip­ment and re­plac­ing it, on av­er­age, 30 months af­ter buy­ing.

Protech adds its debt re­lates to as­set fi­nance, pro­vid­ing suf­fi­cient eq­uity in plant and equip­ment to cover the debt. It also has strong cash flow, which man­age­ment says can com­fort­ably ser­vice its debt.

The com­pany seems to have more work than it can han­dle. Cur­rent projects in progress are worth R840m, R633m of which will be com­pleted over the next 18 months. That makes the fu­ture look pretty bright, some­thing the mar­ket seems to have picked up re­cently.

It’s a trend that should con­tinue, given the fun­da­men­tals of the busi­ness. In­vestors might be hap­pier with lower gear­ing, though, which could clear the way for Protech to start pay­ing div­i­dends.

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