Bank­ing coal

Finweek English Edition - - PORTFOLIOPUNTS COMPANIES&MARKETS - LEANI WES­SELS

CHEAP AND NASTY may do it for some but Protech Khuthele Hold­ings shares are look­ing a lit­tle too easy for this am­a­teur in­vestor. Its share price is al­ready re­flect­ing the con­cerns faced by many other con­struc­tion firms: high gear­ing, low mar­gins and an in­dus­try that may take years to fully re­cover from the build­ing slump. Trad­ing at a dis­count to its tan­gi­ble net as­set value – 63c ver­sus 87,2c/share – it’s easy to lump it with other un­der­val­ued qual­ity shares in the sec­tor, such as Basil Read and Sany­ati.

How­ever, many bro­ker­ages are adopt­ing a wait-and-see ap­proach to the stock as the group’s min­ing work, which was sup­posed to counter the cur­rent fee­ble con­struc­tion con­di­tions, takes some time to take off. PSG On­line sug­gests avoid­ing it and Imara SP Reid main­tains the share is a hold.

At its dis­mal re­sults pre­sen­ta­tion in Novem­ber, man­age­ment said it ex­pected the tough mar­ket to re­main for the time be­ing, which means mar­gins won’t be im­prov­ing any­time soon. Rain­fall, the cost of min­ing safety com­pli­ance and the re­align­ment of equip­ment eroded the group’s op­er­at­ing profit by 47% in its last fi­nan­cial year. The share has since reached a 12-month low of 58c and is ex­pected to re­main at that level un­til its bulk earth­works and civils seg­ments em­bark on a slow re­cov­ery to flat rev­enues in 2012.

Why an­a­lysts haven’t writ­ten it off com­pletely is largely due to con­fi­dence in new CEO Ju­lian Dovey, who has a 15-year track record at the com­pany. Ex­po­sure to the coal in­dus­try is also still an at­trac­tive carrot to some in­vestors.

How­ever, un­til the bulk of Protech’s work moves away from the low-mar­gin coal min­ing in­dus­try to pub­lic and pri­vate in­fra­struc­ture projects, the group’s prof­its are ex­pected to re­main poor. Fin­week sug­gests look­ing else­where for a value play in the sec­tor un­til Govern­ment starts loos­en­ing its purse strings.

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