M&R’s R61.1bn order book to drive revenue and earnings in next three years

Group anticipating further growth in its ‘phenomenal’ order book.
Image: Moneyweb

JSE-listed multinational engineering and contracting company Murray & Roberts (M&R) is anticipating further growth in its already significant R61.1 billion group order book to drive both revenue and earnings over the next three years.

Group CEO Henry Laas said on Thursday it “is a phenomenal order book” and stressed the crucial importance of an order book to an engineering and contracting company.

“Without an order book you don’t have a business so we are putting a lot of emphasis on our order book and the pipeline.

“We do expect the revenue and earnings to grow over the next three years and it is supported by this order book of R61.1 billion and near orders of R12.8 billion,” he said.

Near orders are successful tenders where the commercial terms have not yet been finalised and are therefore not yet reflected in the order book. Laas said much of the R12.8 billion in near orders will find its way into M&R’s order book before the end of June.

It has also submitted R74.3 billion of tenders for projects.

“It doesn’t mean we will be successful with all of those, but there is one project to the value of about R20 billion which we are negotiating on a sole-source basis. There is a real chance of it finding its way into the order book before the end of June,” he said.

Laas said that in terms of the time distribution of the order book, M&R already has R16 billion of revenue in it for its 2022 financial year and has already delivered R13.3 billion in the first six-month reporting period.

“So we can quite comfortably say that for the full financial year we are looking at circa R30 billion of revenue and we will report growth in the revenue on the 2020 financial year.

“There is already R22.6 billion secured for the 2023 financial year and we are still six months away from the start of that year,” he added.

The numbers

M&R this week reported a 23% increase in revenue from continuing operations to R13.3 billion in the six months to December 2021 from the R10.8 billion in the same period in both 2020 and 2019.

Earnings before interest and tax (EBIT) from continuing operations improved by 188% to R337 million from R117 million in the same period, but is still 19.5% lower than the R149 million EBIT in the pre-Covid-19 reporting period in 2019.

Diluted headline earnings per share from continuing operations improved to 29 cents from the prior 8 cents per share loss.

M&R does not declare interim dividends.

Platform updates

The order book of the energy, resources and infrastructure (ERI) platform declined by 9.8% to R38.4 billion from R42.2 billion in the prior period.

But Laas said there is “real potential” for the ERI platform’s order book to still grow materially between now and the end of June 2022.

“We are pleased with the growth in revenue and earnings that we are reporting for this business in the current financial year and are confident this order book provides great support for at least the next two financial years,” he said.

The mining platform grew its order book by 24% to R22.2 billion from R17.9 billion in the prior period.

Laas said this growth had been achieved despite the removal of R2.5 billion from the order book because of the early termination of the Kalagadi Manganese mining project contract in the Northern Cape.

“This order book points to strong growth in the 2023 financial year. In the current financial year, we don’t expect our earnings from this platform will be more than what we reported in the previous financial year,” he said.

Energy projects

Laas admitted the power, industrial and water platform’s order book of R0.5 billion “is very low” and it has struggled to build its order book to the point where it can contribute to group earnings.

But Laas is “really optimistic we can now turn the corner in this business and that it will return to profitability in the next financial year” because of the investment that is now happening in the renewable energy space.

He said M&R is in close discussions with a number of independent power producers, which in turn are in discussion with government and they need to reach financial close towards the end of March/April 2022.

“Subject to the timing of that work… this business could have a break-even period in the second half of the year.

“But if there is any delay on these projects, it will move out to the next financial year,” he said.

Laas said it is possible for the power, industrial and water platform’s order book “to jump up to R4 billion by June this year” if it is successful with the opportunities it is targeting.

The platform established a solar business, Wade Walker Solar, a few months ago and it has already completed its first projects.

“It’s still on a very small scale but we hope this business will grow into the future, given the opportunity that we have in South Africa,” he said.

There are also significant opportunities for OptiPower in the transmission and grid connections space, he said.

OptiPower has two tenders worth about R700 million for two overhead power lines that are currently under adjudication.

Laas highlighted the significant transmission line backlogs in South Africa and opportunities created by the requirement to integrate all the new energy projects into the grid.

“There are only about three companies in South Africa that are accredited to work on these high voltage overhead power lines with Eskom so I believe we will get our fair share of that market.

“But even if we do get our fair share of the renewable energy work, I can’t see this platform getting to the point that it gives us R800 million or R900 million of EBIT.

“If we get to between R50 million and R100 million EBIT that is a realistic expectation within the opportunities that the business is presented with in South Africa,” he said.

Meanwhile Rowan Goeller, an analyst at Chronux Research, said M&R has significant exposure to the Australian market but it would be wrong to make a direct comparison between M&R and WBHO.

“M&R has exposure to Australia, which at the moment will make people nervous, but contractually they are in a much more solid space,” he said.

This is a reference to JSE-listed construction and engineering group WBHO’s decision to withdraw from Australia and confirmation this week that it will recognise a provision of R1.3 billion in its next financial reporting period for the settlement of obligations it gave to financial institutions in Australia on behalf of the group’s Australian operations.

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Goeller said M&R still faces a few challenges negotiating through Covid-19-type delays that have impacted some of its projects, but revenue growth looks “very good” going into its 2023 financial year.

“You are looking at about plus 30% revenue growth into 2023 and margin upliftment as they get to normal operations and not Covid-19 delayed type operations,” he said.

Shares in M&R declined by 1.58% on Thursday to close at R13.10 per share and were down 0.99% at R12.97 by 10:30 on Friday.

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