Flick­ers of hope

Finweek English Edition - - COMPANIES&MARKETS - LEANI WES­SELS

AF­TER MONTHS of si­lence, good news is fi­nally trick­ling in from South Africa’s con­struc­tion sec­tor. Basil Read, the lat­est com­pany to re­port a new multi­bil­lion rand pro­ject, has plumped up its or­der book. A R1,5bn Ma­jwe min­ing joint ven­ture on con­tract with Deb­swana Di­a­mond in Botswana saw the group’s price climb­ing back to around 1260c, a three-month high. The en­tire counter flick­ered up­wards on the news.

So are in­vestors fi­nally eas­ing up on con­struc­tion stocks? Not quite, say an­a­lysts. A rerat­ing is still some time off, be­cause earn­ings will re­main un­der pres­sure even as or­der books are be­gin­ning to re­sem­ble their pre2010 selves again. As at year-end 2010, there will be brief blips of con­fi­dence – only to give way again to in­dus­try-wide pes­simism.

Mur­ray & Roberts won a R4bn con­tract to build a hos­pi­tal in Abu Dhabi, and Raubex, along with Sany­ati, are cur­rently in fi­nal ne­go­ti­a­tions for a R720m roads pro­ject in Uganda.

The N1/N2 Winelands toll road pro­ject is also ex­pected to be awarded this month, which should suck up some ex­cess ca­pac­ity from the mar­ket and leave the rest of the com­pa­nies with breath­ing space and, im­por­tantly, some ne­go­ti­at­ing power.

Cur­rently, all SA’s heavy con­struc­tion shares, save for Mur­ray & Roberts, are trad­ing at earn­ings mul­ti­ples be­low nine, heav­ily dis­counted as in­vestors hold out for the trough of the cur­rent down cy­cle. Al­though mar­ket play­ers are see­ing an uptick in min­ing and civils projects, con­struc­tion is still dead. Gov­ern­ment’s R800bn car­rot has many com­pa­nies try­ing to wait out the slump, with work on the Medupi power sta­tion sus­tain­ing many un­til other large in­fra­struc­ture projects are rolled out. Un­til then, heav­ily dis­counted con­struc­tion shares are still easy to come by.

Af­ter the Raubex/Sany­ati plan of ac­tion was an­nounced, the re­spec­tive shares ex­pe­ri­enced a short glimpse of a more op­ti­mistic mar­ket. Then it was back to old habits. Sany­ati’s share price dropped 9% to 32c once the ex­cite­ment be­gan wear­ing thin. How­ever, Basil Read’s share price is still cruis­ing. No prize for guess­ing it will be short-lived.

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