Builders still busy despite downturn

Infrastructure projects, Gautrain and 2010 buoying big players, writes Bheki Mpofu. SA’s bigger construction companies seem to be holding their own at a time when other sectors are feeling the effects of the global financial crisis.

Several of these companies have continued to post strong results in recent months, with earnings showing double-digit growth. New orders have also continued to stream in.

With a private sector weakened by the credit crisis, the government’s guaranteed multibillion-rand infrastructure programme has played a major part in keeping the sector afloat.

Although most of the companies have reported that operating and profit margins have recently come under pressure, many say they have orders that will see them through the next 12 months and beyond.

Investment has been hit hard by the global credit crunch, resulting in the cancellation of orders. The interest rate-sensitive residential building sector in particular has taken a big knock, with some analysts saying it will be a while before it recovers. With most firms focusing on public sector work, increased competition may eat into future margins.

Diversification of capabilities across the construction and engineering sectors, as the sector consolidated in the past couple of years, have helped most groups mute the effects of slower demand in some markets.

This week civil engineering and construction company Stefanutti Stocks led the pack with strong results when it reported that it more than doubled revenue and net profit for the year to February, boosted largely by strong organic growth and some strategic acquisitions.

Revenue jumped 144% to R6,3bn while net profit after tax grew 121% to R319,4m. Headline earnings of R299,3m translated into headline earnings per share of 185,4c, a significant increase from 103,7c the previous year.

CEO Willie Meyburgh attributes the growth to the successful integration of the two groups as well as a number of key infrastructure development projects related to the 2010 Soccer World Cup.

Interestingly, Meyburgh says the group had still managed to attract work from the depressed private and mining sectors.

Even more work is likely from the troubled Middle East region, where he says the group expected good growth as it aimed to turn over R8bn-R9bn this financial year.

Road construction group Raubex also reported another solid performance for the year, boosted by its acquisitions and the government’s spending programme on roads.

Financial director Francois Diedrechsen says growing demand amid the downturn was demonstrated by the 90% growth in the order book to R5,2bn, the bulk of which came from the public sector.

“This is the healthiest full-year order book we’ve seen, and it includes work that has been guaranteed. It’s pretty much business as usual as we continue to win tenders,” he says.

The group had a 62% increase in headline earnings per share to 291,7c, and expected strong growth to continue in the medium term. Revenue increased 95% to R4,16bn and operating profit rose 84,2% to R794,6m from the year before.

Another engineering and construction group, Esorfranki, also reported this week that it had secured contracts worth R1,5bn which will keep it busy well into next year.

CEO Bernard Krone says the economic downturn is not giving him sleepless nights. He says a raft of infrastructure developments, including the Gautrain, the 2010 Soccer World Cup and roadworks, are keeping construction and civil engineering firms busy.

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