Key message: There is a relatively high probability that government will use SANRAL to kickstart infrastructure spending as a stimulus for the economy. Long overdue, this would boost the road construction sector.

  • Raubex reported FY 20 results. Revenue and operating profit increased by 2.5% and 132% respectively (FY19 was impacted by a provision of R116m for the Zambian roads project and goodwill impairment of R51.5m). HEPS increased by 183.7% to 161.7c.
  • The order book increased to R10.14bn (from R8.01bn). No final dividend was declared to preserve cash.
  • Materials: Revenue down 0.1%, operating profit up 2.5%. Good 2H performance after 1H impacted by community unrest and the transition from diamond materials handling contracts in Namibia to new coal contracts in SA. Contract crushing depressed as project levels low.
  • Roads & Earthworks: Revenue down 10.9%, operating profit up 101.3%. Rightsizing initiatives have curtailed losses, but the division still carries excess capacity in anticipation of an increase in activity. Activity consisted of concessionaires and provincial work. R25bn tenders submitted between Oct 2019 and March 2020.
  • Infrastructure: Revenue up 28.8%, operating profit up 89%. REIPP projects have kept activity levels high, assisted by affordable housing and commercial building. Some PPP opportunities starting to emerge.
  • SANRAL is due to adjudicate on R18bn of tenders shortly with RBX hoping for awards of R4-5bn. ACSA has cancelled tenders for two runway expansion projects due to Covid impacts on aviation.
  • 1H FY21 will be tough with the lockdown period impacting results. Management believe there will be a R200m cash flow impact due to standing costs through the periods of restricted activity. Raubex has a monthly wage bill of R150m. HEPS is likely to fall to close to breakeven in that period.
  • SANRAL tenders could assist a recovery in 2H FY21 should they be awarded in the next month or two.
  • Raubex is getting more queries as a listed general contractor as peers (apart from WBHO) have all but disappeared from the large contractor sector. This gives an opportunity to further diversify the portfolio.

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