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‘Unprecedented’ increase in roadworks tenders

Bids for projects totalling R25bn invited so far this year, says Raubex.
Sanral alone has issued tenders to the value of R18.85bn in the past six months. Image: Supplied
JSE-listed construction group Raubex has reported an “unprecedented” increase in road construction and rehabilitation tender activity, with R25 billion in tenders issued in the past six months by state-owned enterprises (SOEs) and provincial and municipal road departments.

“For two years, there was nothing coming to market for the road construction and earthworks division, so at the end of February [2020] we were very encouraged about this,” said Raubex CEO Rudolf Fourie on Monday.

Of the R25 billion in tenders issued, the SA National Roads Agency (Sanral) accounted for R18.85 billion, the Airports Company of South Africa (Acsa) R3.3 billion, provincial departments R1.87 billion, municipalities R692 million and concessionaires R235 million, he said.

Recent awards

Fourie said Raubex was last month awarded R1 billion worth of road rehabilitation work by the KwaZulu-Natal Department of Transport and received contract awards worth about R815 million from Sanral.

He said Sanral also awarded a R420 million contract to Raubex to complete the construction of the N1-29 Musina Ring Road.

Fourie said the order book of Raubex’s road and earthworks division increased by 71% to R5.46 billion at end-February from R3.19 billion in the previous year.

He said the division’s Sanral order book at end-February 2019 was at R207.6 million, the lowest in the company’s history, with total revenue derived from Sanral slumping to 1.9% at end-February from 12.5% in the previous year.

But Fourie said Raubex’s Sanral order book has increased from 3% to 13% in the past year and is back at R1.275 billion.

‘Quite exciting’

“There is still potential for another R5 billion or R6 billion of [Sanral] work that is pending award, so that could increase substantially further if they award these potential contracts that have been put out to tender. That is quite exciting.

“Sanral is very buoyant and says they have not had any budget cuts from government,” Fourie said.

“There is no indication from Sanral that it is not carrying on with any of these projects.

Read: Sanral optimistic about its construction tenders proceeding

“They said the awards are imminent. We understand that to be four to six weeks but they did not give a date.

“In our history, Sanral used to make up 25% to 30% of our order book and we believe it could go back to that,” he said.

Rightsizing

The lack of work forced Raubex to embark on a rightsizing exercise over the past two years.

Raubex financial director James Gibson said on Monday that most of the rightsizing took place in the previous financial year when 724 employees were retrenched.

Gibson said a further 160 employees were retrenched in the road and earthworks and infrastructure divisions in the year to end-February, with the group employing a total of 7 418 people at year-end.

Fourie said Raubex has sufficient work in the short term because it has increased its order book, although in the medium- to long term it would like to see more contract awards.

Raubex had a group order book of R10.14 billion at end-February, compared with R8 billion in the previous year.

This is the first time its order book has exceeded R10 billion.

Fourie said that from a construction perspective Raubex is operating at 50% to 60% of capacity and has “a lot of scope to increase what we can do”.

He added that a Beit Bridge border post tender in Zimbabwe, involving R2 billion of work, has not yet reached financial closure and is therefore not yet included in Raubex’s order book.

New opportunities opening up

Fourie said Raubex is also obtaining new infrastructure opportunities from private clients and developers, owing to other contractors defaulting on their contracts and going into liquidation or business rescue.

“One of their preferences is to deal with a listed company that has a strong balance sheet. There are not a lot of them left. In this last year, we had a lot of new clients or opportunities coming to us. We believe there could be quite an exciting pipeline of new work in this.”

Fourie said there was an overall improvement in Raubex’s financial performance across all three divisions – roads and earthworks, materials and infrastructure – in the year to end-February.

Raubex on Friday reported a 183.7% increase in headline earnings per share to 161.7 cents from 57 cents in the prior year.

Revenue rose by 2.5% to R8.73 billion while operating profit improved by 132% to R480.5 million.

In the year to end-February, the operating profit of the roads and earthworks division improved by 101.3% to R3.1 million from the operating loss of R245.8 million in the previous year. The operating profit of the materials division increased by 25% to R367.7 million and the infrastructure division by 89% to R178.2 million in the same period.

No final dividend declared

A final dividend was not declared because of cash preservation measures implemented, due to the impact of Covid-19 pandemic.

Fourie said the implications of Covid-19 on the group are complex and unpredictable and it is not possible at this time to quantify the financial impact of the pandemic.

Marc Ter Mors, global head equity research at SBG Securities, said Raubex’s results were better than expected and the group is one of his preferred industrial companies to be invested in at this stage.

“It’s so well aligned to public sector spending,” he said.

“And we do think the South African government will need to use its infrastructure budgets to provide jobs and to get the multiplier effect to work in the economy.”

However, Ter Mors said there is high uncertainty in the forecasts and believes next year is going to be a year of two halves, with substantial pressure on profitability in the first half and perhaps a strong recovery in the second half, particularly if the Sanral and other road projects come to the market.

Read: Covid-19 impact on construction sector will be ‘catastrophic’

Shares in Raubex rose by 5.82% on Monday to close at R19.63.

 

Raubex share price over the past five years

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Finally a positive piece on construction, thank you.
“Please Sir may we have some more”

Is this an article on increased spend on roadworks or an advertisement? Should it not go under the “paid for” section.

This must explain the petrol price increase coming tonight.

government have a lot to spend! the rise in the petrol price will help them a bit

This is great news but, …… the “tenderpreneurs” must be licking their lips. Lets hope the procurement procedures attached to all this spend are all in place ?

Hope this is not followed in a year or two with “Govt agencies and Municipalities fail to pay contractor”

This is a brilliant sign. Finally some action from the talk! Bring us more Cyril. Revive our Dynamic Construction sector. We have brilliant leaders in Construction. We just need the opportunity to make money!

End of comments.

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