The share price of construction group Wilson Bayly Holmes-Ovcon (WBHO) dropped by more than 4% on Tuesday to R142.91 on the back of its annual results that showed a disappointing result from the United Kingdom (UK) and a shrinking local order book.
WBHO CEO Louwtjie Nel however told Moneyweb the group delivered a credible result in a very difficult market. Basil Read, one of its peers, is in business rescue and Group Five and Aveng are experiencing huge financial pressure. WBHO has long been a market favourite in the construction sector, delivering good results consistently.
Source: Moneyweb/Profile Data
On Tuesday WBHO announced a 9.8% increase in revenue to R35 billion, R1 billion operating profit, up from R780 million in the previous financial year and headline earnings per share of 1 414.6c, up 8.1% from the previous financial year.
The annual dividend remained unchanged at 475c per share.
At year-end on June 30 the group had R6 billion in cash, up from R5.5 billion a year before.
WBHO saw strong revenue growth from Australia, which resulted in an increase in contribution from 58% to 63%. It however came at a low operating margin of 1.3%.
The revenue contribution from South Africa dropped from 36% to 30% but the local market still contributed about half the operating profit.
Operations in the rest of Africa grew by 32%, but operating profit dropped sharply from R251 million in the previous financial year to R185 million in the reporting period.
Nel said the Byrne Group in the UK, in which WBHO has increased its stake from 40% to 80%, recorded a bigger loss than expected. This is however not a big problem, he said, since overheads have been reduced and the group has a strong order book.
WBHO is further excited about its 60% stake in Russells Ltd and its 31.7% stake in Russell Homes Ltd, both acquired after the year-end, which strengthen its presence in the UK and, for the first time, gives WBHO exposure to the UK residential market.
He said the group’s current R54 billion order book is now well balanced between South Africa, Australia and the UK. This includes the order books of the Byrne Group and Russells. At the end of June, prior to the acquisition of Russells, the order book was R49 billion.
The local construction market is extremely tough, says Nel. “Our industry is being disseminated in South Africa.”
WBHO’s roads and earthworks order books shrunk by 32%, while the building and civils order book shrunk by 17%.
Nel says the group is “everywhere looking for work”, but there is little investment from the private sector or in public infrastructure. The South African National Roads Agency (Sanral) has resumed the awarding of contracts to consulting engineers, but this has not yet progressed to awards to contractors.
There is very little work coming from state-owned companies and not much from the renewable energy sector yet. WBHO is busy with the solar photovoltaic (PV) plant in Zambia and some construction work in South Africa for renewable energy projects, but nothing significant, says Nel.
There is an increase in work from the coal mining sector, with the group winning bids to construct two new mines for South32 and Anglo respectively and two mine expansions for Exxaro. In Botswana the diamond mining sector has also provided some opportunities.
Nel says where the group does win work in South Africa, the so-called construction mafia, also known as business forums, is a serious obstacle. “There is hardly a project where we started without interference from communities or ‘business forums’,” says Nel.
He estimates that WBHO has lost 6 000 manhours due to such disruptions. “We are used to working with communities and that is no problem for us. We have developed a framework to work through these things, but these are not credible business forums and they want big amounts.”