Friday, 22 February 2008 02:00

Construction growth to last at least to 2015

As expected, in Finance Minister Trevor Manuel’s budget, an enormous amount of money is to be spent on infrastructure.

Trevor ManuelAs I mentioned yesterday, there’s no shortage of money to help alleviate poverty and develop our economy — the problem is to manage the resources efficiently.

For construction companies — as I cited from Group Five’s results for the half-year ended December 31 — a fundamental investment problem is the difficulties in managing the awarding and implementation of contracts.

In due course, the infrastructural plans in the budget will be implemented and Group Five and other construction companies will benefit from these.

“In due course” is, of course, an elastic period of time. Even so, there is some solid evidence that the construction sector is in a growth phase that could last at least beyond 2015.

In its 2007 financial year-end (June 30) presentation, Group Five showed a chart of the market outlook for the construction sector. The chart was sourced from Stellenbosch University’s Bureau of Economic Research. The figures used were of real (inflation excluded) investment in construction works.

The chart confirms that the sector is in a five-year growth cycle. In 2003, total construction work was valued at about R25bn, which in real terms was below the figure in 1991 when it last enjoyed a growth phase.

In 1981, the peak year of previous state infrastructural growth, total construction work amounted to R40 billion. Only last year was that figure again reached.

Stellenbosch’s bureau forecast takes this figure to more than R65 billion by 2015, of which the public sector is expected to contribute R50 billion.

Five years ago, Group Five’s share price was about R5,30. Its historic price:earnings ratio then was around five, and its share price trend was boringly flat. But as the cycle sector progressively improved, the company’s turnover and profits rose and the share price responded positively.

In the 2003 financial year the company’s headline earnings per share were 120c. Last year they were 283c. The share price is now at about R51,50 — about 10 times the 2003 figure — but the historic price:earnings ratio is more than 17.

Murray and Roberts (M&R), the construction counter we hold in the Private Investor portfolio, is on an historic price:earnings ratio of more than 20. Rather than believing M&R is overpriced, there is good reason to believe that Group Five is underpriced.

My guesstimate of its forward fully diluted headline earnings per share for the financial year ended June 30 this year is about 330c, giving the share a forward price:earnings ratio of about 15,5 — a bit low relative to earnings growth expectation of about 30% 40% over the medium term.

Group Five also looks an interesting buy on the technical indicators. The share price is still in a bear trend, but the price has broken through all its moving averages. It has a count to R58, a less probable count to R63 and its resistance is around R52.



Tuesday, 19 February 2008 02:00

Group Five to sustain push for better margins

Construction company Group Five said yesterday it would continue to focus on margin improvement, increasing real returns and cash generation by picking contracts carefully and monitoring risk closely as it moved into bigger, multidisciplinary contracts.

Construction IndustryCEO  Mike Upton said the group was in a solid position with its one-year order book reaching R7bn and its total secured construction order book at R14,1bn.

“Our results reflect the work we have done to balance our portfolio of core businesses, our competence in securing and executing large, multidisciplinary contracts in key sectors, and our mix of geographies in our areas of operation.

“Only the construction division put a damper on otherwise great results, but this was due to competitive imports,” Upton said.

Revenue grew 12,2% for the six months to December, to R4,5bn from R4bn in the previous first half.

The investments and concessions division contributed 7,5% to the group’s revenue and 9,3% to its operating profit. This was obtained mainly from the group’s operation and maintenance of toll roads and returns on its equity positions in concessions.

Revenue from property developments went up 37% while operating profit more than doubled at R13,8 m.

The manufacturing division was the only disappointment, contributing 7,1% to the group’s revenue and 6,9% to operating profit. But Upton said it was on track to recover and improve margins. The division’s operating profit fell 48,5% to R19,4m from R37,8m, resulting in operating margin percentages dropping from 14,5% to 6,1%.

Construction materials contributed 7,4% to group revenue and 26,3% to operating profit with revenue up R334,3m, generating an operating profit of R73,6m and a 22% margin, which was in line with expectations. Cash and cash equivalents for the period increased R360m to R989m, compared with an increase of R60m for the year to June.

Upton said acquired businesses of Quarry Cats, Sky Sands and Bernoberg Milling contributed to group earnings

The construction division, which consists of building and housing, civil engineering and engineering projects, continued to be a star player, contributing 77,9% to revenue and 57,5% to operating profit. Group Five is migrating resources from the building and housing sector to mega contracts that encompass all construction disciplines.

Construction revenue remained unchanged at R3,5bn, although operating profit rose 80% from R89,2m to R160,7m.

Coronation Fund Managers analyst Dirk Kotze said the results were good and came in as expected, although manufacturing was disappointing.

“This is a company in an expansion mode with plans to acquire more businesses. The positive thing about it all is that all but one division are doing well and cash flow is excellent,” Kotze said.


Monday, 18 February 2008 02:00

Group Five reports interim results

South African construction group Group Five on Monday reported a 45% rise in fully diluted headline earnings per share to 145c for the six months ended December from 100c a year ago.

Construction IndustryAn interim dividend of 45c per share was declared, up from 30c a year earlier. Revenue grew 12% to R4.495 billion from R4.004 billion before, while operating profit – at R279.6 million - was up 103% from a year earlier.

The group also generated R360 million in cash in the six months under review. Operating performance improved at all group segments except Manufacturing, it said.

It added that the focus on improving the quality of the order book, improving contract execution and improving cash collections has delivered a robust performance, with the majority of the group's businesses showing an improvement.

The core business of Construction posted an improvement in returns and Construction Materials performed well in line with expectations and delivered margin enhancing returns to the group's results.

Manufacturing activities were affected by slow first quarter sales and pricing pressures from imports.

Group Five formed a new joint venture in August 2007 with the Barnes Group of Companies - Barnes Reinforcing Industries - supplying rebar, weld mesh, brick force and binding wire.

This operation has expanded and strengthened the group's manufacturing portfolio and supported the Construction operations' drive to improve margins, it said.

The group further expanded its Construction Materials portfolio by acquiring 100% of plaster firm Sky Sands for R124 million, with effect from 1 July 2007.

Sky Sands, which is involved in the supply of plaster and washed sand products to building materials merchants, the building industry and the pre-cast concrete products industry, has exploitable sand reserves estimated to be in excess of 25 years of production, together with further mining opportunities on the Sky Sands properties.

The acquisition complements the group's expansion and growth strategy in the infrastructure sector and assists in mitigating the risk of future materials shortages with respect to key building and infrastructure contracts, especially in the Gauteng market.

In addition, Bernoberg, a small niche manufacturer of cement extender, was acquired for R32 million.

Bernoberg further diversifies the business portfolio in the construction materials supply sector and complements the existing product range. The Bernoberg acquisition was effective from 1 October 2007, it said.

Looking ahead, the group said the recent power outages have not materially affected Group Five's construction operations, as measures had already been put in place to address such an occurrence.

Short term risks to performance are primarily related to the effect on suppliers and the group's Manufacturing operations, should the number of power outages worsen.

A detailed investigative risk review of all of the group's operations and construction sites has been completed and steps taken to mitigate the effect of outages.

The group continues to receive a number of attractive opportunities in local fixed investment spending. Mining, power and oil and gas activity in Africa also continues to offer high growth potential.

Group Five's total secured construction order book as at end December 2007 is R14.1 billion (60% local) and the secured one year order book for F2008 is R7 billion ( 62% local).

Management is satisfied that the group has access to sufficient resources to successfully execute the higher levels of activity ahead.

"The group is therefore well placed to achieve another year of solid earnings growth, while delivering improving value to its shareholders," it said.


Wednesday, 05 December 2007 02:00

Group Five wins road tender in Hungary

Construction company Group Five announced that its infrastructure concessions business, intertoll, was part of a consortium that had been awarded the R11 billion M6 Phase 3 Motorway Project in Hungary.

Construction IndustryIntertoll held 10% of the concession company and would lead the operations and maintenance activities for the project, it said.

Revenue was expected to start flowing through to Intertoll from the beginning of next year, with full-scale operations beginning in 2010.

Intertoll’s partners on the project are Strabag of Germany, France’s Colas and John Laing Infrastructure from the UK.

The 78km dual carriageway project includes the construction and maintenance of 55 structures and four tunnels totalling more than 3km. The 30-year concession project reached financial close on November 21.

Intertoll was part of Group Five’s infrastructure concessions business and offers toll system design, procurement, implementation and operation, together with related services such as routine road maintenance.

The business has equity interests in two other service concessions in Eastern Europe and operates toll roads in SA.

“Since joining the European Union in 2004, the transit traffic through Hungary from Romania and Bulgaria has increased more than 30%.

Hungary has ambitious plans to develop its road infrastructure under an aggressive timeline, and the M6 Phase 3 is an important part of this plan,” said head of Group Five Infrastructure Concessions Eric Vemer.

Vemer said that the project reinforced and added depth to Intertoll’s position in Hungary and the group’s growing profile in eastern Europe.

The project was tendered and closed in record time, with pre-qualifications announced in May, tenders submitted in September, the preferred bidder chosen in October and financial closure last month.

Group Five last month said it had further expanded its manufacturing and construction materials portfolio by acquiring Bernoberg, a small niche manufacturer of cement extender, for R32m.

Early this year, the group said that it planned to increase its revenue from R5,8 billion to R7,3 billion by the end of the 2008 financial year next June.


Monday, 12 November 2007 02:00

Strike goes on at World Cup stadium

Unless the Ethekwini Municipality pushed the company building Durban’s 2010 stadium to pay its workers decent wages, the labour strike would continue — a move which will affect the deadlines set by world soccer controlling body Fifa , the Congress of South African Trade Unions (Cosatu) said last week. 

Wednesday, 07 November 2007 02:00

Moses Mabhida stadium on track: Management

Construction on the Moses Mabhida 2010 Soccer World Cup stadium is on track

Construction on the King Shaka International Airport, which will replace the existing Durban International Airport, will continue full-steam ahead

Group Five's strategic refocusing was reflected in its solid set of results for the year to June released on Monday.

Mike UptonThe group's revenue increased 31,1% to R7,7 billion from R5,9 billion last year.

Most significant was the strong growth in profitability, especially the group's achievement of a 5,1% margin.

According to CEO Mike Upton, this was achieved by the group's focused strategy of building a balanced portfolio of businesses across the construction sector and a particular focus on improving margins in its main business, construction.

The group also replaced the revenue and margins of its disposed businesses, Vaal and DPI, with higher-margin businesses in the materials sector.

The construction sector has evolved, requiring companies to develop expertise beyond basic construction to increase capacity to take on larger and more complex contracts from inception to completion.

The group has a clear strategy and three core revenue streams across construction, investments and concessions, and manufacturing and building materials.

Upton said yesterday the group saw organic growth in investments and concessions and the rationalisation and acquisition of materials businesses as the route to improved margins and sustainable performance.

With the group's one-year order book at R4,8 billion and capacity of about R7,3 billion, the strong market provides significant scope for Group Five to choose higher-margin contracts.

With a new strategy that is meant to ensure a balanced business mix, the group can expect to achieve further earnings growth in the 2008 financial year.

Group Five's competitors have also seen growth as the R100 billion a year construction sector continued grow, with Murray & Roberts announcing that its order book had increased to R22 billion in March this year, up from R15 billion in December last year.

Wilson Bayly Holmes-Ovcon started this year with an order book of R5,3 billion.


Wednesday, 04 July 2007 02:00

Group Five wins R1,8 billion contract

Construction company Group Five has won a R1,8-billion contract from Transnet to widen Durban's existing harbour by 100m and to increase the depth by 6m.

Mike UptonWorking with Belgian company, Dredging International, Group Five Civil Engineering is responsible for the civil portion of the contract, valued at R1,1 billion.

Transnet group chief executive Maria Ramos last week announced the state-owned enterprise's plans to spend R78 billion on expanding South Africa's rail, port and fuel pipeline infrastructure over the next five years and this amount is likely to grow as more projects get the go-ahead.

Group Five's managing director of the civil engineering operations, Andrew McJannet said: "We are very pleased with this contract, which was won against international competition. We believe our previous marine civils experience, such as the Moma Jetty in Mozambique and the dry bulk terminal jetty in Richards Bay, played a role in us being the winning bidder."

Group Five's partner on the project, Dredging International, has dispatched a hi-tech dredger capable of moving 5000m of rock and silt an hour from Belgium to achieve the 7-million cubic metres that will be moved over the next two years.

"This is the third major contract in Kwazulu-Natal awarded to the group since the beginning of 2007. We have already started on the 2010 Durban soccer stadium, in consortium with WBHO and Pandev, and have signed the contract for the R6,8 billion King Shaka Airport, in which Group Five is the lead contractor for the Ilembe Consortium - which includes WBHO and the KZN Empowerment Group," said Group Five's chief executive officer Mike Upton.

Work on the harbour has started, with the demolition of existing land structures and the establishment of a pre-cast concrete yard close to the site where the blocks required for the contract will be cast.

The contract is due for completion in May 2010


Friday, 01 June 2007 02:00

Group Five clinches Beacon Bay deal

A construction deal worth R210-million for the first phase of Beacon Bay's Triple Point development was handed over to JSE-listed engineering giant Group Five on Thursday.

Construction IndustryThe contract that will kick off in August includes the construction of 200 one, two and three bedroom apartments.

Later phases of the R500-million development will include retail and office space as well as a four-star hotel expected to be built next year.

Novate Properties' strategic development manager, Grant Wheatley, said the project's go-ahead had been reached after the first building of 70 apartments had sold out.

The second tranche of 65 apartments has now been released.

"We believe Group Five's appointment significantly reduces the risk of this project to us, the developers, as well as to our investors in the project," said Wheatley.

Managing director for Group Five Housing Frank Enslin said his team was delighted to be working on the "ambitious project which is similar to others Group Five has successfully completed, amongst these, St Michaels on the KwaZulu-Natal south coast".

Enslin said that contracts director for St Michaels Eric Higgitt would lead the construction team at Triple Point. "Eric lived in East London for almost 10 years and attended Selborne College before leaving for Johannesburg, where he joined Group Five as a bursary student. He has approximately 20 years' experience in the field of upmarket residential construction," he said.

Wheatley also announced that Group Five would run a training programme in East London and offer accredited training opportunities to unskilled and unemployed people in the city.


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