Inventory-picking is a mug’s sport, however Raubex, a survivor within the beaten-up building sector, could also be an organization to look at as the federal government ramps up its infrastructure spending in 2021.
In his 23 years at Raubex, CEO Rudolf Fourie has not entered a 12 months with such a way of each alternative and unease. Alternative, as a result of the federal government’s promised funding in infrastructure is exhibiting promising inexperienced shoots — and Raubex stands to learn. Unease, as a result of the exterior dangers, over which Fourie and his group haven’t any management, have escalated dramatically.
“Authorities’s intention is to spend money on infrastructure to get the financial system shifting. However what none of us is aware of is to what extent the second wave of Covid will affect on the financial system.”
It’s this uncertainty that’s creating challenges, he says. “There may be little or no occurring within the personal funding area. There are not any new retail tasks. Two resort tasks have been cancelled — one in Cameroon and one in George. Persons are preserving money. There may be nothing on the M&A aspect — the uncertainty is killing us.”
This implies authorities is the principle sport on the town. As one of many few listed building corporations of scale nonetheless standing after the rout of the previous decade, Raubex is well-positioned to learn.
Ten years in the past, Raubex was the seventh-largest JSE-listed building agency, falling outdoors of the so-called Massive 5. At this time, it, Stefanutti and WBHO stay. Murray & Roberts and Aveng are listed too, however having bought their building companies, neither is immediately centered on the sector.
Beneath the listed tier are eight to 10 “strong and respected” building companies, says Fourie. One is Enza Tasks, the black-owned agency that Raubex is mentoring by way of its dedication to the Voluntary Rebuilding Programme, agreed on with the federal government in 2017. Fourie expects Enza to be among the many nation’s high 5 inside seven years.
“They’re good operators and sometimes deal with 25% of our contracts. I get pleasure from the truth that in the case of enterprise, we expect precisely the identical.”
In late 2019, funding in infrastructure spending ticked upwards for the primary time in three years. However alongside got here Covid-19, and new tenders and building tasks dried up. However that is altering.
“We’ve tendered on 70 tasks ranging in dimension from R50-million to R1-billion within the final 4 months. Sanral is again. The massive water boards are again. It seems to be like a transparent intention by authorities to speculate,” he says.
In November, Raubex was awarded two main contracts by Sanral, collectively valued at R2.87-billion, serving to to spice up Raubex’s order ebook to R17.Eight-billion.
That is double the agency’s common of R8-billion, however Fourie shouldn’t be about to pop any corks.
“That is good for turnover, however margins are skinny as a result of everyone seems to be bidding on these tasks, so income can be low.”
Low revenue is healthier than no revenue. Within the 12 months ended February 2020, the group’s Highway & Earthworks division, the most important and oldest within the agency, made a loss for the primary time in 40 years. This 12 months, Fourie expects the division to return to revenue after rightsizing initiatives helped curtail losses. “However we gained’t be taking pictures the lights out.”
The corporate now employs 7,300 folks, down from 10,000 4 years in the past, and is working at 60% of its capability. It maintained its funding in “folks and plant” throughout the lockdown, which got here at a value, however it means the corporate is able to scale up as demand will increase.
Whereas the development business is a shadow of what it was, Fourie estimates idle capability at 70% to 80%, so there’s some option to go earlier than a capability crunch.
In an effort to gear up organically, Fourie want to see consistency within the building spending of presidency. “It’s both an excessive amount of or too little,” he says. Proper now, if all of the spending comes by, as promised, the sector might run into capability constraints rapidly.
Tenders for infrastructure megaprojects are slowly approaching stream, and there are only a handful of corporations that may do the work. Raubex is effectively positioned.
Other than its native deal with roads, supplies and infrastructure, Raubex additionally has a small, however wholesome, building enterprise in Western Australia. That is benefiting from authorities funding. “The one drawback is that we are able to’t get there and don’t anticipate to for the following 12 months. It should develop organically.”
Tasks in Cameroon, Mozambique and Namibia had been shut down at numerous levels in 2020.
“Beforehand, 30% of our orders got here from different African nations, however the danger profile in these areas is simply too excessive. Our intention is to deal with South Africa,” he says.
Chantal Marx, head of Funding Analysis at FNB Wealth and Investments, says Raubex is an attention-grabbing proposition.
“Tenders for infrastructure megaprojects are slowly approaching stream, and there are only a handful of corporations that may do the work. Raubex is effectively positioned,” she says.
Relating to megaprojects, what separates the wheat from the chaff is the stability sheet: the contracting firm wants a stability sheet that may assist hefty ensures.
“Raubex is famend for its wholesome stability sheet and robust money flows,” Marx says. On the half-year in August, it had R1.6-billion on its stability sheet and generated R623-million from operations. “This places it in a really comfy place,” she says.
Buyers like the corporate as a result of it has been a really constant dividend payer, regardless of the cyclicality of the business. One other plus is that its largest associate within the authorities is Sanral, which Marx says is among the extra effectively managed SOEs — the e-tolling debacle excepted. This implies the challenge plans and costings are dependable, avoiding the potential for battle and expensive challenge delays.
However Covid stays a big concern for Fourie. Other than the larger financial implications and operational considerations — equivalent to maintaining staff protected — tasks are being affected too. One, particularly, is Raubex’s $176-million improve of Zimbabwe’s Beitbridge border publish. Work started in December, however below present restrictions staff can not cross the border to carry out the work.
The escalation of battle with the so-called Development Mafia is one other concern, Fourie admits. Based on Sanral, 30% of any contract should be outsourced to the local people. However this will create unreasonable expectations round wages and work, Fourie says.
To handle this proactively, Raubex creates devoted neighborhood liaison groups forward of any challenge. They have interaction with the neighborhood during the challenge. Even then, the answer shouldn’t be fail-safe as issues can come up when the neighborhood itself is split. About 70% to 80% of tasks are affected, he says.
Nevertheless, this can be a well-managed firm that has withstood different challenges. That bodes effectively for the long run.
What additionally bodes effectively for the long run, says Marx, is the dividend coverage. She expects this to be reinstated on the interim outcomes, which might set off a rerating of the inventory, at present buying and selling at R27, on a ahead price-to-earnings ratio of seven. DM/BM