Financial Mail


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

- Siseko Njobeni njobenis@businessli­

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
Andries van Heerden

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