JSE-listed multinational engineering and construction company Murray & Roberts (M&R) expects its revenue for the year to June 2022 to “comfortably exceed R30 billion”.
“That will be a 50% improvement on the revenue for the year to June 2021,” said M&R CEO Henry Laas on Thursday.
Laas based this forecast on the 12% growth in the group’s order book to an all-time high of R60.7 billion at end-June 2021 from R54.2 billion in the prior year.
“We are extremely excited about the R60.7 billion order book and more so because of the quality of this order book,” he said. “That provides us with the opportunity to experience strong revenue growth but also earnings growth in the 2022 financial year.”
Laas said the order book growth will predominantly come from M&R’s two multinational businesses, the energy, resources and infrastructure (ERI) and mining platforms.
He said the power, industrial and water platform is focused on sub-Saharan Africa and does not have the same opportunities.
“It operates in the local market, predominantly in South Africa, and we haven’t seen investment in the power, industrial and water sector to the extent that is really necessary for this platform to make a contribution to our results,” he said.
Laas said M&R has an order book of R26.8 billion that is already secured for the financial year to June 2022.
“We should comfortably achieve another R6 billion on top of that so we have an expectation that our revenue in the new financial year should exceed R30 billion.
“It is quite exciting to have that level of revenue, and without the burden of the discontinued operations, it really sets us up nicely for the future,” he said.
Rowan Goeller, an analyst at Chronux Research, said M&R has an extremely large order book, which has been growing substantially over the last two years in particular and on which the group should start executing and delivering in a substantial way in its 2022 financial year.
But Goeller said the key question is how much profit M&R is going to make and whether there are any potential projects that could be big loss makers.
He highlighted that a lot of the construction companies have got into trouble with order books that looked quite good.
“But M&R has got a good quality order book because it is within its risk boundaries and risk understanding in the type of projects that it is doing.
“I certainly don’t think it’s a risky order book and in the execution of that order there is nothing more than normal construction risk.
“In that space, if you are bidding 8 to 10% gross margins, you should get 3% to 5% net margin — and if they deliver 3 to 5% net margin on that order book, they will make very good money in the next year or two,” he said.
Turning to M&R’s project pipeline, Laas said the group has R11.1 billion in near orders, which comprises work that has been secured by the group but has not yet been signed, meaning M&R is not able to take it into the order book yet.
However, Laas said there is a 95% chance of near orders translating into the order book.
He added that M&R has submitted R84 billion in bids for Category 1 tenders (tenders that have already been submitted and are currently under adjudication) and highlighted that R30 billion of the R84 billion Category 1 tenders submitted by M&R are being negotiated on a sole source basis.
These tenders relate to three projects, one in Zimbabwe and two in Australia, but all three projects are subject to final investment decisions, he said.
“We can’t time that exactly but we are confident that some of them will find their way into the order book, if not by December, certainly very early in the second half of the current financial year,” he said.
‘Ample working capital’
M&R financial director Daniël Grobler said M&R does not bid on big projects that are cash-negative, especially in the ERI platform, adding that the group has ample working capital facilities to support the growth of the order book going forward.
Laas said M&R did an extensive assessment of its project delivery capability in the ERI platform and made several changes, with some people exiting and new people introduced into the business.
He said the group also has a very intensive internal audit process to assist it in the early identification of any issues on projects, but stressed that the biggest risk on any project is the quality of the leadership on that specific project.
Laas said the group’s order book of R60.7 billion “is probably as good as it gets” because it will have to secure new work to the value of R30 billion to “stand still and maintain the order book”.
However, he said the group has a strong pipeline of new work, adding “we will see how the order book plays out”.
Laas confirmed that M&R is pursuing an acquisition opportunity in the US, with the objective of diversifying its service offering in the US so it mirrors what it provides in the Asia-Pacific region.
This involves an expansion in the US into the metals and minerals space and the specialist infrastructure market, he said.
Laas said the potential acquisition in the US, if successful, will be in the order of R300 million.
“It is too early to say if we will be successful. It is part of our plans and due diligence is under way,” he said.
M&R this week reported strong growth in earnings before interest and tax (Ebit) from continuing operations to R540 million in the year to June 2021 from the loss of R17 million in the prior year.
Revenue from continuing operations grew by 5.3% to R21.9 billion from R20.8 billion.
The operating earnings were partly offset by an increased loss for discontinued operations, which resulted predominantly from non-recurring extraordinary and non-cash losses, including from its Middle East operations.
But Laas said the impact of the discontinued operations on M&R as a group over the past number of years is coming to an end.
He said the group has entered into a process to sell two of its companies in the Middle East while the other two are being deregistered.
Laas said the sale is still subject to certain regulatory approvals but M&R is optimistic it will be concluded by the end of September 2021.
“That will then give us a complete and a final exit from all our historic construction-related businesses,” he said.
The attributable loss reduced to R180 million from the R352 million loss in the prior year.
The growth in earnings from continuing operations resulted in a turnaround in diluted continuing headline earnings per share to 16 cents from the loss of 88 cents per share in the previous year.
A dividend was not declared.
Shares in M&R rose by 2.32% on Tuesday to close at R10.14.
Listen to Simon Brown’s interview with M&R CEO Henry Laas in this MoneywebNOW podcast (or read the transcript here):