Group Five shares slide after profit warning

Stocks plunge by 12.7%

SHARES in Group Five plunged yesterday after advising that its fully diluted headline earnings a share for the year to June were expected to be between 43 percent and 53 percent lower than the previous year.

The company’s stock fell 12.7 percent to close at R3.20.

This equates to the listed construction and engineering group reporting fully diluted headline earnings a share of between 188c and 219c compared with 399c in the year to June 2014.

The group did not provide any explanation for the decline in earnings in the trading update published yesterday.

However, Group Five chief executive Eric Vemer told Business Report when the group released its interim financial results in February that the group planned to retrench about 250 of its permanent employees and incur retrenchment costs of about R25 million in the year to June.

The retrenchments were driven by a disappointing performance by the group’s civil engineering business, with its profit margin deteriorating to minus 2.7 percent in the six months to December from a target range of 3 percent to 5 percent.

Fully diluted headline earnings a share from continuing operations for the six months to December dropped by 47 percent to 107c in the previous corresponding period.

In addition, Group Five said in February that it expected continued pressure on earnings in the next six months of its financial year due to continued slow market order intake, restructuring costs in civil engineering, an ongoing higher percentage contribution from lower-margin building and housing and the impact of a later-than-expected start of the Kpone power project in Ghana.

It added that the South African market in general remained constrained although there were some pockets of activity in certain sectors in which the group had good capabilities.

The group’s sector-focused, geographic strategy and positioning in new and traditional target markets in Africa and eastern Europe had, and would continue to, mitigate against some of this local market weakness while providing good growth opportunities in the medium to longer term, it said.

The group said an improvement was only expected in the 2016 financial year.

An analyst who did not want to be identified said they were “pretty bearish” on the listed construction sector because of the lack of work and the poor performance in general.

He said the market should not have been too surprised by Group Five’s trading update because it had provided a number of reasons when it released its interim results on why it expected continued pressure on earnings in the second half.