Murray & Roberts (M&R) anticipates listing the multinational engineering and construction group internationally.
M&R CEO Henry Laas said an international listing has always been part of the group’s plan since the new strategic future was conceptually developed.
“It was an initiative or a part of the plan that would have been executed by now if it wasn’t for the collapse of the oil price and the impact that had on M&R’s earnings,” he said during a virtual business presentation on Wednesday.
“It’s currently still an important part of our thinking but we lack the scale with our market capitalisation between R4.5 billion and R5 billion to attract the necessary interest from an international stock market to be successful,” he added.
Laas said M&R must in the short term ensure that it turns the opportunity it sees in its order book into real earnings growth for its stakeholders and shareholders and M&R shares trade closer to M&R’s estimation of the group’s intrinsic value.
He added that M&R did a valuation of the group during a recently concluded new three-year business plan for the 2022-2024 financial years.
“The value is substantially higher than what we see currently in the share price and market capitalisation for M&R.
“So before we can successfully think about a dual listing for M&R as a group, we need to get to a point where the market capitalisation is more reflective of what we believe the inherent value of the company is,” he said.
Laas said it is up to M&R to ensure that it executes its order book well and the earnings from it “put us in a better position to achieve that offshore listing”.
M&R reported at the beginning of March that its record order book of R60.5 billion at end-December 2020 could grow by about 32% to about R80 billion by the end of June.
The group said at the time it also had R19 billion in near orders.
Laas added that the way for M&R to achieve a dual listing was probably through “a corporate transaction” because of the group’s lack of scale.
He stressed however that the group does not want to engage in this type of transaction from a position of weakness.
The group therefore needs to wait for its market capitalisation to better reflect what it believes is its intrinsic value, he said.
M&R group investor and media executive Ed Jardim confirmed after the presentation that although an international listing is on the agenda, it is not something the group is actively working on at this time.
“If you look at how small the South African business is now compared to our international business, it just makes sense in terms of getting a decent rerating on the share for our shareholders in terms of the international market but you need to have the scale to do so,” he said.
Laas said M&R believes that over the next three-year period more than 85% of the group’s revenue will come from its international businesses.
He said M&R has a substantial global footprint after the group’s management worked hard over the past 10 years to reshape it into a multinational engineering and construction group.
“We are very optimistic about the future of M&R and believe we might be at the beginning of a period of strong earnings growth for the group.
Last decade ‘brutal’
“The last decade however was brutal on engineering and construction companies, not only in South Africa, but globally,” he said.
Laas admitted that M&R’s financial results from its 2015 financial year onwards “is not a good picture” that eventually ended up in a loss of R0.4 billion in 2020.
However, he stressed that the loss in the 2020 financial year was largely because of the Covid-19 impact on the group’s businesses.
Laas said the single biggest reason for the decline in M&R’s earnings from the 2015 financial year was the collapse of the oil price from more than $100 a barrel to $20.25 a barrel, which occurred 11 months after the group acquired Clough in Australia.
He said Clough at that time was contributing R1 billion to earnings before interest and cash.
Clough was predominantly providing services at that time to the oil and gas sector but investment into this sector dried up with the collapse in the oil price, resulting in a lower contribution to the group and Clough reporting a R450 million loss in the 2020 financial year.
But Laas said Clough changed its strategy in 2016 and broadened its market focus wider than only the oil and gas sector to include the broader energy sector, the resources sectors and specialised infrastructure.
“As a consequence of that, the business has done extremely well to build a significant order book in these new market sectors,” he said.
M&R’s energy, resources and infrastructure platform (ERI), which trades under the Clough brand, had a record R42.2 billion order book for this platform at end-December 2020.
The growth in the ERI platform’s order book resulted in M&R also growing its order book to a record R60.5 billion.
Laas said M&R is confident, based on the strength of the order book, that it is “getting back to a time where Clough will contribute R1 billion or even more to group earnings”.
He said the ERI platform will be profitable in the year to end-June 2021.
“But given the strength of this order book, we are very excited about what the earnings potential will be from that business.
“Together with that, we still have the mining business in the group, which is contributing handsomely to our profits. This is the main reason why we are optimistic about our future,” he said.
Shares in M&R rose 1.57% on Wednesday to close at R10.32.