Building its own road
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.