Wilson Bayly Holmes-Ovcon (WBHO) makes the contracting business look easy - until you look at the performance of its peers in the construction sector.
A seven-year review of WBHO shows the group scored consistent earnings growth. During the same period, operating profit increased by an average of 20% . Profits jumped by 51% to R55,4m in the six months ended December- a difficult period for mainstream construction businesses.
WBHO's share price has gained more than 80% in the past 12 months, reachinga record high of R18,50 last week. The construction sector of the JSE shows20% growth in the same period, as does the all-share index.
WBHO management is confident the group will maintain real growth inprofits at year-end in June, despite the difficulties of the mainstreamconstruction industry.
Murray & Roberts and Aveng, on the other hand, are under profit-marginpressure. Both warned of significant profit reduction in the current financial year, after a decade of erratic growth.
The industry faces significant reduction in profits repatriated from offshore operations because of the strengthening of the rand. Profit marginshave further been affected by erratic payment from some foreign contracts,notably from certain African countries.
So what makes WBHO different? Financial director John Abbott agreesi t could be put down to strategic choices by management .
"We have a management team which has been with the group for a longtime and has a deep understanding of this business," says Abbott. "A strongbuilding division has worked well for us."
An analyst says the group found itself in the right place at the righttime, with its greater concentration on the smaller-scale building industry.
The group has ridden the national boom in residential property, shoppingcentres and medium-sized office blocks - areas which seem to have beenignored by its peers on the JSE. WBHO's order book grew by R300m to R2,2bnin the six months ended December. Order books of its rivals are under pressure.
The list of building contracts in the group's order book include theCapegate regional shopping centre contract, worth R256m; two apartmentblock contracts in Clifton in the Cape; and the Sibaya Casino and Entertainment Kingdom in KwaZulu Natal.
In Gauteng, the group is undertaking a R290m construction of the ClearwaterMall in Roodepoort; the Bowman Gilfillan office block in Sandton; and thevillage at the Oubaai golfestate. The group has also been awarded a contract for construction of a shopping centre near Malelane, worth R50m,and the department of trade & industry office campus contract in Pretoria.
It comes as no surprise, though, that WBHO has not been immune to difficultiesin mainstream construction. The decline in contracts in the earthworksand roads division has affected turnover - along with currency-translationlosses and delayed payments.
Despite this, says management, the roads & earthworks division achievedan improved performance, with an increase in operating margin from 4,2%to 5,3% in the interim results.
With a cash balance of about R300m, plus a negligible gearing, WBHOcould be a very good buy.
