Ru­ral rules

Home im­prove­ments mak­ing money for build­ing sup­pli­ers

Finweek English Edition - - COMPANIES&MARKETS - LEANI WES­SELS leaniw@fin­

WHO NEEDS THE bright lights of the city when you have the grow­ing spend­ing habits of South Africa’s ru­ral ar­eas? Build­ing sup­pli­ers are punt­ing that seg­ment as life slowly drains out of the tra­di­tional ur­ban mar­ket, ac­cord­ing to a slew of earn­ings re­sults re­ported last week. Ren­o­vat­ing in the ru­ral mar­ket has re­placed new homes built in/near cities, says build­ing sup­plier Cash­build and un­listed brick maker Coro­brik. sales are 11% higher than 2010’s first quar­ter. CEO Dirk Meyer says the group is tar­get­ing the low-cost hous­ing mar­ket, which is where all the ac­tion is. Meyer says Coro­brik had to re­open its Lim­popo fac­tory, and its Free State fac­tory in Oden­daal­srus is op­er­at­ing at 110% to keep up with de­mand.

Sta­tis­tics SA re­ported last month that in Jan­uary build­ing plans passed were dom­i­nated by KwaZulu-Na­tal (up 21%) and Midrand tanked over the past year. From ce­ment mak­ers to en­gi­neers, the con­sen­sus is both the West­ern Cape and Gaut­eng are dead as far as de­mand is con­cerned.

Even strug­gling steel mer­chan­diser Alert Steel’s new turn­around plan will be fo­cused on the ru­ral mar­ket. Al­though spend­ing habits are an ap­peal­ing as­pect, Alert’s new CEO Jo­han du Toit is par­tic­u­larly in­ter­ested by the lack of competition in this sec­tor.

But the plat­te­land isn’t yet a gold­mine for ev­ery­one. Com­pa­nies with­out the ex­po­sure to the home im­prove­ments mar­ket are plod­ding along like the rest of the ail­ing con­struc­tion in­dus­try.

Small cap RBA Hold­ings, an affordable hous­ing de­vel­oper, is still re­port­ing earn­ings un­der pres­sure. Its re­sults for the 12 months to end-De­cem­ber 2010 (re­leased last week) show the group made a loss for the sec­ond con­sec­u­tive year. De­spite the much-touted 700 000 house­holds’ strong de­mand for affordable houses, con­struc­tors such as RBA are con­strained by poor mu­nic­i­pal in­fra­struc­ture and are forced to con­struct wa­ter and roads in­fra­struc­ture, thereby pric­ing houses out of the affordable mar­ket. De­spite a head­line earn­ings loss of 4,89c/share (an im­prove­ment on the pre­vi­ous year’s 11,48c), the group re­ported some good news: rev­enues in­creased by 24%. That will be a wel­come sign of im­prov­ing times for Oryx In­vest­ment Man­age­ment, which put R1,67m to­wards a cap­i­tal-rais­ing for new prop­erty de­vel­op­ments.

Un­til Gov­ern­ment loosens its purse strings – which his­tor­i­cally leads to pri­vate spend­ing in­creases – it looks like the ru­ral mar­ket can still of­fer an es­cape from the re­al­ity of the down­turn.

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