SUR­VIV­ING THE DESERT

You may not no­tice amid all the an­guish, but some con­struc­tion com­pa­nies are do­ing just fine right now. For Afrimat, the se­cret was di­ver­si­fi­ca­tion; for Mur­ray & Roberts, it was whole­sale rein­ven­tion

Financial Mail - - COVER STORY - Siseko Njobeni njobe­[email protected]­nesslive.co.za

In the midst of value de­struc­tion, dwin­dling or­der books, shoddy per­for­mance and a gen­eral at­mos­phere of de­spair, some con­struc­tion com­pa­nies are do­ing just fine. A com­mon de­nom­i­na­tor is that, rather than stick­ing to pure con­struc­tion, they diver­si­fied into sec­tors that of­fered new growth prospects.

Afrimat is one of them. It has been in busi­ness for 45 years, and de­scribes it­self as an “open-pit min­ing com­pany” that also pro­vides all kinds of build­ing ma­te­ri­als, in­clud­ing bricks, ce­ment and in­dus­trial min­er­als. It also con­tracts out ser­vices to the con­struc­tion in­dus­try.

The bot­tom line: dur­ing a decade when most other con­struc­tion com­pa­nies felt the pain of a melt­down, Afrimat’s share price rose 1,200%. Over five years it is up 140%. And it keeps di­ver­si­fy­ing. In Oc­to­ber 2016, it got into the iron-ore sec­tor when it made a bid for the Diro iron-ore mine (since re­branded as De­ma­neng) near Sishen in the North­ern Cape. The mine was in busi­ness res­cue at the time.

Afrimat CEO An­dries van Heer­den says you need to plan on the un­der­stand­ing that the con­struc­tion in­dus­try moves in cy­cles.

“You need to un­der­stand the risks and act ac­cord­ingly,” he says. “The start­ing point is to en­sure that your bal­ance sheet is not overgeared. Sec­ond, you need to en­sure that you have sev­eral sources of rev­enue.”

Third, con­struc­tion com­pa­nies should aim for flaw­less ex­e­cu­tion of projects. “We know there have been prob­lems of ex­e­cu­tion with some com­pa­nies.” Is the in­dus­try ripe for con­sol­i­da­tion? “We will see some ac­qui­si­tion and sale of as­sets. There are pri­vate eq­uity play­ers look­ing for as­sets,” says Van Heer­den.

There are plenty of as­sets on the block too. In Jan­uary, Group Five sold its man­u­fac­tur­ing as­sets, Everite and Sky Sands, to a con­sor­tium of pri­vate eq­uity com­pa­nies, Trini­tas Pri­vate Eq­uity and Ag­ile Cap­i­tal, for R480m.

Mur­ray & Roberts (M&R), which traces its roots to 1902 and which built the Carl­ton Cen­tre in Joburg, the Koe­berg nu­clear power sta­tion and the sail-shaped Burj al Arab lux­ury ho­tel in Dubai, has al­ready ditched the con­struc­tion in­dus­try.

In April 2017 M&R sold all its civil and build­ing con­struc­tion busi­nesses to a con­sor­tium led by the South­ern Palace Group of Com­pa­nies for R314m.

Spokesper­son Ed Jardim says: “The in­fra­struc­ture and build­ing plat­form trans­ac­tion was con­sis­tent with our in­ten­tion, set out in the new strate­gic fu­ture plan, to exit the civil in­fra­struc­ture and gen­eral build­ing sec­tor through a first-of-its kind em­pow­er­ment trans­ac­tion in this in­dus­try.”

South­ern Palace is a 100% black-owned hold­ing com­pany, founded in 2002 by Sello Mahlangu. Says Jardim: “We ex­ited the in­fra­struc­ture sec­tor com­pletely and no longer do any build­ing or civil con­struc­tion work in SA.

The for­mer Mur­ray & Roberts Con­struc­tion busi­ness was re­branded as Con­cor.”

M&R now fo­cuses mainly on three sec­tors: oil and gas; power and wa­ter; and un­der­ground min­ing.

Jardim says there is still long-term de­mand for nat­u­ral re­sources, which bodes well for his com­pany.

“These driv­ers in­clude global pop­u­la­tion growth, ur­ban­i­sa­tion and eco­nomic growth, as well as en­vi­ron­men­tal con­cerns, that are stim­u­lat­ing in­vest­ment in wa­ter se­cu­rity and clean en­ergy sources.”

It’s hard to ar­gue with the num­bers.

Over the past three years, M&R’S share price has rock­eted 47%, and most an­a­lysts now rate it a buy.

That’s rare love that you’re not see­ing in the con­struc­tion sec­tor right now.

An­dries van Heer­den

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