Construction analyst Llewellyn Lewis has long preached that "something enormous is happening to the building and construction industry". He has been branded a blind optimist by some in the industry, but the results from groups like Wilson Bayly Holmes-Ovcon, Group Five and Italtile suggest Lewis is on to something.
When he talks construction, Lewis - director of the BMI Building Research Strategy Consulting Unit - never loses sight of the fact that this is an industry propelled by property assets worth more than R1 trillion. In the positive economic atmosphere since 1994, these property assets have been regularly maintained, improved and refurbished. New residential stock worth around R12,5bn and nonresidential buildings worth R12,3bn are being added annually, says Lewis.
These assets represent an engine for growth of the construction system, "but in typical myopic fashion, the major part of the industry has never regarded these economic activities to be of any interest ", says Lewis.
Two of SA's largest construction groups, Murray & Roberts and Aveng, must be cursing themselves for not being able to take much of a part in the building boom. Late entry has denied them time to build more capacity. That is why both companies complain that building margins are too low.
Presenting the latest interim results, M&R CEO Brian Bruce found it necessary to explain the group's limited engagement in the boom. He said M&R was primarily an engineering and contracting group, focused on higher-margin work, and had had no joy in small building contracts taken on last year. Much the same has applied to Aveng.
The problem is that high-margin contracts have been scarce. Offshore activities have been dogged by payment disputes and pressured by the strong rand. As a result, M&R's headline earnings per share dropped by 10,2% from 234c to 210c. Revenue rose 29% to R5,4bn. No change of growth trends is expected at year-end in June.
Aveng reported 12% improved interim revenue of R6,6bn, which produced a 55% increase in headline EPS from 85,7c to 132,5c. But this improvement came from a low base, after a 52% decline last year. Aveng's construction division continues to struggle.
"To some extent Aveng has a similar problem to M&R, while Group Five shares WBHO's size advantage," says Imara SP Reid analyst Steve Meintjies. Being smaller brings more flexibility.
WBHO and Group Five have raked in a larger heap of the local building market and it's visible in their figures. WBHO reported earnings growth for a tenth consecutive interim period last week, while Group Five reported its sixth consecutive interim of growth.
Building activity has been high, particularly in the coastal areas, says a WBHO results statement. The group expects its Western Cape and KwaZulu Natal divisions to exceed budgets at year-end.
Highlights of the work undertaken last year tell the WBHO story. These include Clearwater regional shopping centre in Roodepoort, the Sibaya Casino & Entertainment Kingdom in Umdloti, the Cape Gate regional shopping centre in Cape Town and a host of high-density residential building contracts.
It's an echo of what Lewis has been saying all this time: "Something exciting and dynamic is happening below the surface."
