MURRAY & ROBERTS at last reported some positive news. It’s proof of how unpopular the share was that a trading update announcing an earnings loss for the period can result in the price jumping from 2750c to 2970c/share on the day. Of course, the statement also included some much-needed information about the group’s progress in settling those pesky payment disputes, which relate largely to contracts M&R hasn’t yet been paid for, but was marked to market a few years back.
It seems things are well on track, especially the group’s Medupi project, which forms the bulk of the group’s R25bn order book and teetered on cash flow problems before any disputes could be settled. Those settlements didn’t happen overnight, of course. However, it’s still a confidence booster for the group that new CEO – veteran Henry Laas – had a smooth transition into the top spot and could continue negotiations with the likes of Eskom.
Those settlements will go a long way to fund its working capital, a sore point for any investor who’s stuck with M&R, hence the uptick in its share price over recent weeks. The group’s latest results for the six months to end-December 2010 show working capital sucked more than R600m out of the system over that period. It expects that strain to be much relieved, thanks to the progress made on the disputes.
That was the good news. Unfortunately, the group’s fortunes are still looking bleak. Project delays, changes in scope of work done and a generally poor macroeconomic reality all contribute to a worrying outlook. Years from now the cycle will turn and investors will be happy again. But will any lasting damage be done by the group’s spectacular disgrace during this trough? Those with the institutional memory probably won’t again get caught up by the hype. Everybody else? Well, just make sure that income stream has been realised.