Trading Statement for FY20

Key message: Road work continues to be at very low levels, but recent tenders from SANRAL seem to indicate the potential for a significant boost in a relatively uncompetitive environment.

  • Raubex released a Trading Statement for FY20. HEPS is expected to increase by at least 75% to 97.8c.
  • Included in HEPS will be a fair value charge of R3m for the sale of Raubex Property Investments. Excluding this from HEPS would have resulted in HEPS growing by approx. 110% to 120c.
  • Earnings are coming from a low base in FY19, with a provision of R117m for the Zambian roads project, R51m impairment for the asphalt division and R25m of retrenchment costs.
  • Adjusting for the once-off items, it appears that the operating performance improved by R40m to approx. R420m at an operating margin of 5.2%. This is low compared to the last five years and still reflects a low baseload of work in the roads sector.
  • However, several large tenders are due for adjudication soon by SANRAL and ACSA and the order could benefit significantly should Raubex be successful. A look at the submitted tenders for large projects (>R1bn) for SANRAL show evidence of the decimation of large contractors in South Africa – typically there are only 4-5 bids (of which Raubex, WBHO, Edwin and Aqua are the common bidders).
  • While most construction markets remain very competitive, any resumption in reasonable road and civils activity will stretch the resources of the remaining credible CIDB9 contractors.
  • The construction sector may well be developing some growth potential that could help it avoid the general economic weakness and coronavirus impacts – and infrastructure spending is one of the few fiscal tools government has at present.
  • With a Target Price of R23.60 we have an Outperform recommendation for Raubex.

Download this report