However, in line with Global Credit Ratings (GCR) view of the construction industry, the rating has been placed on Rating Watch.

GCR notes that the construction industry continues to face a difficult operating environment, with a dearth of new contracts and continued delays in the awarding of government contracts. As a result contraction companies have not been able to secure the same level of margins as were contracted at the height of the boom. Moreover, rising costs are also becoming a concern, placing additional pressure on margin.

Nevertheless, according to GCR, Basil Read's focus on its core Roads division, which continues to account for around 66% of earnings, continue to support strong net profits. However, the scope of operations have been enhanced more recently by the skills set provide by TWP and the continued growth in the mining division. This has seen Basil Read secure new mining contracts post year end, raising its order book to R9.1bn at FYE10, with R4bn relating to projects in F11.

Overall, GCR considers the second tier of the construction industry to be a more favourable space to focus on. The massive constructions projects continue to face substantial delays, as well as contracting and technical difficulties. However, there remain a number of projects between the R100m and R500m mark, spread across the public and private sectors, which offer decent opportunities for Basil Read.

This notwithstanding, the difficult operating environment is likely to place additional working capital burdens on the company. Accordingly, GCR expects Basil Read to revert to a small net geared position at year-end 2011.