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M&R subsidiary in Australia lands R4.8bn contract

For a gas processing plant, one of four awards worth R40bn anticipated by the group.
The Wheatstone Gas And Oil Project in Western Australia is another of Clough’s projects. Image: Supplied

JSE-listed engineering and construction group Murray & Roberts (M&R) has been awarded another significant contract in Australia to further bolster its already strong order book and future potential earnings.

M&R reported on Monday that Clough, the group’s Australian subsidiary, has been awarded a contract valued at about Au$400 million (around R4.8 billion) for engineering, procurement and construction scope of work on the Waitsia Stage 2 development project in Western Australia.

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M&R group investor and media executive Ed Jardim confirmed on Monday the contract is one of the four near orders and “Category 1 opportunities” with a combined value of about R40 billion that M&R last year reported it was negotiating on a sole-source basis.

The group said Clough has been awarded the contract by Waitsia Joint Venture partners Mitsui E&P Australia and Beach Energy.

This is the second significant contract awarded to Clough in recent months.

It follows an equal joint venture between Clough and global Spanish infrastructure and concessions group Elecnor being selected in October 2020 as the contractor for an about Au$1.5 billion (around R18 billion) contract for TransGrid’s Project EnergyConnect.

Read: M&R JV awarded R18bn contract

M&R said on Monday the Waitsia Stage 2 project includes a new 250 terajoule per day gas processing plant with a 20-year life cycle that will convey gas via the nearby city of Dampier to the Bunbury Natural Gas Pipeline.

It said the Waitsia gas field is ranked as one of the largest gas fields ever discovered onshore in Australia and is forecast to bring significant economic benefits to the mid-west region from both the construction and operating phases.

M&R said Clough’s scope of work relates to a gas processing plant, including power generation, adding that Clough and the client have worked together for the past two years to optimise the project design.

It said the project is set to commence during the first quarter of the 2021 calendar year and will bring significant economic benefits to the region as well as the state.

These two significant contract awards follow M&R reporting in June 2020 it has a significant, quality order book of R54.2 billion, which includes several multi-year contracts.

The TransGrid project was not one of the three significant energy, resources & infrastructure platform projects and single mining platform projects the group previously mentioned.

Prospects

Turning to the group’s prospects, M&R said the expectations for economic recovery after Covid-19 are uncertain and revised frequently, but the group is well positioned to operate through the short- to medium-term uncertainty.

Read: Two M&R contracts affected by virus outbreak

M&R said recently-awarded new projects are expected to start contributing towards earnings during the second half of the group’s 2021 financial year.

“The financial results for FY2021 H2 are expected to show an improvement when compared to that of the first half,” it said.

“The board believes the group will return to profitability in FY2021 and continue its path to earnings growth beyond.”

M&R in August 2020 reported an earnings before interest and taxes (Ebit) loss from continuing operations of R17 million for the year to June 2020 compared with the R847 million profit in the previous year.

This translated into a diluted continuing headline loss per share of 88 cents compared with the 114 cents profit in the previous year.

M&R’s earnings were dented by a R197-million earnings knock from low ridership levels on the Gautrain and a R622-million Covid-19 impact because the group was unable to work on projects as a result of the lockdown restrictions and regulations.

Read: M&R takes R197m earnings knock from low Gautrain ridership

The group’s results were also negatively impacted by a vendor loan impairment of R80 million related to the sale of its steel fabrication and erection contracting business, which had gone into business rescue; a goodwill impairment of R63 million; and an uncertified revenue impairment of R46 million after reassessing the recoverability of one of the group’s claims.

However, M&R said in August last year that the value of the group’s order book is “a lead indicator of future earnings potential and its multi-year project pipeline categorises the opportunities expected to grow this value”.

“The resilience of the group’s business model, and the strategic positions achieved by the business platforms in high-potential market sectors, supports a return to profitability in the 2021 financial year and a path to earnings growth beyond,” it said.

Marc Ter Mors, the global head equity research at SBG Securities, said at the time it was very likely M&R’s order book will be at an all-time high at the next reporting period for the six months to December 2020 in view of the fact that M&R had already reported that there will very likely be another R40 billion of additional contract wins in the short term.

Shares in M&R closed unchanged at R8.40 on Monday.

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