Key message: A big negative surprise in Australia…….again. An announcement that Probuild has had an unsolicited offer may signal a full retreat from Australia – and that is probably the right move.

  • WBHO released a Trading Statement covering the Covid-19 impact and completion of the Western Roads Upgrade in Australia.
  • It also announced that an unsolicited approach for Probuild has been received and is getting the Board’s attention. Australia has turned out to be somewhat of an Achilles heel for WBHO – loss-making projects have consistently negated profits in the region. A retreat from Australia would probably be welcomed and WBHO have not been able to export their local construction expertise.
  • The key feature of the update is the guidance of an approx. R1bn operating loss in Australia in FY20 (through two projects – WRU and 443 Queens Street).
  • This will necessitate a cash transfer to Australia to maintain covenants to support local guarantee facilities.
  • WBHO’s large cash balance (R5.5bn) will be able to absorb these large cash requirements and movements and there is no liquidity risk.
  • We update our numbers to reflect this trading update. FY20 is forecast to show a HEPS loss of 265c. We do expect HEPS to recover to 1375c in FY21.
  • This trading update was an unfortunate surprise – management have normally been good at recognising losses in the period they are recognised with little further damage. The WRU project in Australia has for exceeded management’s initial provisions and will effectively wipe out 3 years’ worth of earnings in Australia.
  • Notwithstanding that, WBHO remains one of the few large local contractors in South Africa and should benefit from market share gains and improved pricing power should the economy start to recover and government embark on infrastructure spend as a means to kickstart the economy.

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