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Finweek English Edition - - COMPANIES & MARKETS - LEANI WES­SELS

WHEN WILL THE good times come again? The con­struc­tion in­dus­try looks to be kneedeep in its trough. Group Five came out with an­other epi­cally bleak trad­ing state­ment. Fair enough: with an earn­ings yield of around 5% no­body ex­pects it to be fart­ing rain­bows. Ev­ery­one knows the in­dus­try is strug­gling, and Group Five in­vestors are still pay­ing for the ma­te­ri­als busi­ness Quarry Cats ac­qui­si­tion in 2008, so the share didn’t take too much of a tum­ble on the day of the an­nounce­ment. The share has since stayed around 3000c.

The group ex­pects its earn­ings per share to drop by be­tween 45% and 55% for its 2010 year. This fig­ure looks dras­ti­cally dif­fer­ent (and leaves you with a fully di­luted earn­ings loss, down 205%) if you in­clude the im­pair­ment drag from its ma­te­ri­als divi­sion. Thanks again, Quarry Cats. At least its cash po­si­tion is ex­pected to still be strong. The group’s last re­sults show it was still sitting on a sturdy R2bn cash pile. It will be in­ter­est­ing to see what’s hap­pened to that sum over the past six months of its fi­nan­cial year as Group Five burned through more than R700m for the six months to end-De­cem­ber 2010 to fund work­ing cap­i­tal. Rev­enue will be un­der pres­sure and trade re­ceiv­ables won’t look much bet­ter as the down cy­cle af­fects the en­tire value chain in the in­dus­try.

In its des­per­a­tion to find a sil­ver lin­ing in this mar­ket, Group Five says it will be reen­ter­ing the rest of Africa, where it al­ready has some­thing of a good rep­u­ta­tion. The lo­cal and Mid­dle East down­turn is just not dis­si­pat­ing fast enough – de­spite its healthy cash pile – for it to wait out the cy­cle.

The stock is look­ing cheap, Quarry Cats im­pair­ments are al­most done and the sec­tor has hit its low, ac­cord­ing to some mar­ket an­a­lysts. How­ever, for now Finweek will wait on the side­lines for that first spark of re­cov­ery.

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