JSE-listed engineering and construction group Murray & Roberts (M&R) believes its record order book of R60.5 billion at end-December 2020 could grow by about 32% to about R80 billion by end-June 2021.
M&R CEO Henry Laas said on Thursday the group believes it is well positioned for a strong return to profitability in its 2022 financial year and expects further growth in earnings thereafter.
Growth in earnings will largely come from the group’s energy, resources and infrastructure (ERI) and mining platforms, he said.
Laas said M&R had revenue of R10.8 billion in the six months to end-December 2020 and expects revenue to be slightly higher in the second half of its financial year.
“If you take that off the R60.5 billion, it will leave us with about R45 billion. There is R19 billion in near orders that must still find their way into the order book and all these [are] sole-source opportunities.
“So if the stars line up correctly, we could be finding ourselves in the position that we have an order book of around R80 billion by the end of June,” he said.
Opportunities and orders
However, Laas said this is subject to the final investment decision on these sole-source opportunities and being able to close out all the near orders and move them into the order book before the end of June.
Laas said near orders are projects that have been secured and are only subject to the contract between M&R and the client being concluded, with these orders normally moving into the order book over a very short period of time.
Marc Ter Mors, global head of equity research at SBG Securities, said it is quite excited about M&R’s prospects.
“Assuming there aren’t any hiccups in all the large contracts in the energy, resources and infrastructure division, the growth recovery “could be quite exciting”.
Ter Mors said the mining capital expenditure cycle is turning positive and SBG sees investments in the expansion of existing mines as another growth contributor.
However, he said there are also some risks related specifically to the fair value of M&R’s investment in the Bombela concession for the Gautrain.
“I wouldn’t be surprised that if we are going to see delays in the vaccine rollout, limitations of international flights and people not going back to the office yet fully, that a valuation adjustment may be necessary.
Read: M&R takes R197m earnings knock from low Gautrain ridership (Aug 2020)
“But in the bigger scheme of things, that is more than compensated [for] in the mining and energy platforms,” he said.
Energy, resources and infrastructure
Laas said the ERI business has a current order book of R42.2 billion, which is also a record high for this platform, and near orders of R5 billion.
The ERI business had an order book of only R4.4 billion in December 2018.
Laas said two near orders valued at R1.2 billion have already moved into the order book since the end of M&R’s interim reporting period.
And the award of an undisclosed near order project valued at R2.6 billion will be announced next week.
Laas said the ERI business has R49.3 billion in Category 1 opportunities in its project pipeline, which are contracts for which the group has submitted tenders.
The group is negotiating with the client on three of these opportunities valued at R26.2 billion on a sole-source basis.
He expects that the final investment decision on all three of these project opportunities will be taken before the end of June.
Laas said the mining business has an order book of R18 billion, which has been relatively flat for the past 18 months.
However, commodity prices have “gone through the roof” and mining companies have been reporting record results and earnings.
“We are quite confident that there will be major investment that will flow into the mining sector, which will present new opportunities for this platform.
“We do expect that the order book will grow strongly over the next six- to 12-month period as these projects get approval for development,” he said.
Laas said the mining business has R14.7 billion in near orders and the group is encouraged by the R44.2 billion of Category 1 opportunities on which the mining business is currently bidding.
He said four near orders valued at R1.1 billion had moved into the group’s order book since the end of the interim reporting period and M&R is negotiating with the client on an undisclosed Category 1 project opportunity valued at R8 billion on a sole-source basis.
However, Laas said it is unlikely a final investment decision will be achieved on this opportunity before the end of June.
Power, industrial and water
He said the power, industrial and water (PIW) business, which focuses predominantly on sub-Saharan Africa and has completed its construction on the Medupi and Kusile power stations, is suffering from the lack of investment in South Africa over the past number of years.
It had an order book of R400 million at end-December 2020, R200 million in near orders, and R6.6 billion in Category 1 pipeline opportunities.
Laas said there hasn’t been any significant new investment or opportunity for this platform to pursue new work.
And although “encouraged” by what was said in Parliament last week when the budget was presented, and President Cyril Ramaphosa’s commitment to infrastructure spend in South Africa, “we haven’t really seen anything yet”.
Laas said M&R has largely recovered from the quite serious impact Covid-19 on the group in the second half of its 2020 financial year.
Earnings before interest and tax for continuing operations improved to R117 million in the six months to end-December from the R436 million loss in the second half of the 2020 financial year.
M&R reported a diluted continuing headline loss per share of eight cents in the six months to December, compared with the 49 cent profit in the previous corresponding period.
Shares in M&R rose 3.5% on Thursday to close at R8.32.
Listen to Simon Brown’s MoneywebNOW podcast featuring M&R CEO Henry Laas discusses its results: