Esor shares drop despite its return to profitability

SHARES of construction company Esor fell 5.26 percent yesterday despite the company’s return to profitability and a 176.6 percent rise in headline earnings a share in the year to February 29.

Esor’s revenue was down 0.9 percent to R1.44 billion. It attributed the reduced revenue to delays in awarding contracts for the Diepsloot mixed-use housing development.

The company reported 14.4c a share headline earnings a share, compared with headline loss of 18.8c a share in the same period last year. Esor, which has R42.4 million cash on hand, did not declare a dividend.

With work worth R1.7bn on hand, the firm said it was still largely dependent on government contracts, with 86 percent secured revenue from national, provincial, local government and parastatals. Esor and other construction firms have continued to benefit from expenditure in public infrastructure.

Esor said, although it was largely reliant on government contracts, a strict focus on debt collection and cash management had ensured that the company was not exposed to government overdue accounts.

Esor said Africa accounted for 3 percent of total revenue and this provided a valuable rand hedge. “Africa remains a hotbed of growth with a number of opportunities in Zimbabwe, particularly in the nongovernment sector,” Esor said.

Sibonginkosi Nyanga, an analyst at Momentum SP Reid Stockbrokers, said yesterday that depending on how companies got paid, increasing work in other African countries could be a good move. He added that there were risks to consider before venturing into the rest of Africa. “You have to be strategic.”

He cited Group Five, which had executed a road project with the help of a loan from the Development Bank of Southern Africa (DBSA) a few years ago. “Many companies have ventured into the rest of Africa and got their fingers burnt.”

Chief executive Wessel van Zyl said Esor’s performance vindicated the board’s decision to restructure and “right-size” the group to create a more stable platform for growth. The firm has been streamlined into two divisions – Esor Construction and Esor Development.

“Overall we were profitable, but the year was one of two halves. The first six months progressed relatively well. The second presented us with clients going into financial distress, costly quality issues on the Northern Aqueduct project and the December builders’ holiday,” Van Zyl said.

Esor said the construction business had come under pressure from depressed commodity prices. Shares yesterday closed at 36c.