WBHO grows as peers fight for survival

28-02-2018
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Moneyweb
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The share price of construction group Wilson Bayly Holmes-Ovcon (WBHO) traded more than 1% higher on Wednesday morning at R172.75, following the announcement of its interim results the day before.

WBHO reported 17.3% growth in revenue to R18.1 billion and operating profit increased by 8.1% to R510 million.

Headline earnings per share from continuing operations increased by 82.6% to 727c and an interim dividend of 150c per share was declared, which is unchanged from the previous year.

This comes as many of WBHO’s South African peers are struggling to survive in a very difficult local market.

The group saw a 28.7% increase in its revenue from its Australian operations to R11.1 billion and a 33.6% increase in revenue from roads and earthworks. Local building and engineering income dropped by almost 10% and the small construction materials division saw a 29.6% decrease in revenue.

Australian revenue however came at a much smaller margin of 1.3% and South African operations still generated the largest share of operating profit (R271 million).

The UK operations ran at an operating loss.

WBHO CEO Louwtjie Nel told Moneyweb that the nature of the group’s operations in Australia differs from its traditional operations in South Africa. “In Australia we are construction managers and the work is all subcontracted, while we do the work ourselves in South Africa.”

The Australian margin will almost be smaller than in South Africa, but it was also negatively affected by one problematic contract in Sydney. “We realised there were problems in October and the project will be completed by March,” he said.

Nel says the Australian market keeps on growing. The group secured a substantial residential upgrade project in Melbourne that will keep it busy for the next two and a half years.

Going forward WBHO will be busy with fewer, but larger projects – all valued at more than $400 million. The group will watch the projects closely to prevent nasty surprises, he says.

Mining infrastructure activity in Africa, especially West Africa, has increased. Revenue from the rest of Africa has increased by 64% and came at a healthy margin.

The South African market has hit its bottom, Nel says. He expects the next 12 months to be stable with a better political climate, but not significant improvement for another year.

Roads orders picked up last year, he said.

WBHO had good engagements with Sanral about its proposed drive towards transformation of the local construction industry. Moneyweb earlier reported that Sanral has proposed limiting the number of projects awarded to the large, listed construction groups and set transformation targets exceeding those the industry agreed upon with government.

Sanral is expected to finalise its policy by April and Nel says the agency listened to WBHO. He hopes it will accommodate the listed construction sector, even if phases in its new requirements over a period. That said, it is clear that the transformation of ownership will have to be accelerated, Nel says.

The Competition Commission recently approved WBHO Construction’s mergers with Fikile Construction, Edwin Construction, and the Motheo Construction Group, which fulfills some of its obligations in terms of the earlier industry settlement with government.

Nel says WBHO has had a tough start in the UK where it bought a 40% interest in the Byrne Group last year. The group knew it would first have to restructure, but it took longer than expected. Nevertheless “we are still excited about the UK” and expect to see good results in the long term, Nel says.

The group’s total order book stood at 52.4 billion on December 31, which is a 17% increase from June 2017. A total of 74% of this is situated in Australia, 23% in South Africa and 3% in the rest of Africa.