Bitter Pill Swallowed
Key message: A significant loss in Australia clouds a reasonable performance in a weak market.
- WBHO released FY20 results. Revenue increased by 6% (down 12% in South Africa, up 14% in Australia and UK), but an operating loss of R541m was reported due to two loss-making projects in Australia and a R396m Covid-19 impact.
- The Western Roads Upgrade (WRU) in Australia will now cost a total A$133m to complete. Settlement with the State Government of Victoria has reduced the completion risk and the cost to complete. WBHO will still pursue claims against the design consultants.
- WBHO has had to transfer A$100m to Australia to cover the WRU losses (Probuild has covered the 443 Queens Street losses and injected A$14m into WRU). Despite this, the cash balance remains strong at R7.6bn and WBHO is able to absorb the WRU losses without stressing the balance sheet.
- The possible sale of Probuild continues after an unsolicited proposal. Principle agreement has been reached and respective board approvals are required to finalise the deal. Notwithstanding the recent large losses, we believe that the sale will be based on multiples of normalised earnings and could release significant cash.
- The performance through the rest of the group was good (excluding Covid-19 impacts) and project execution up with normal WBHO standards. While order books had been in decline, post year-end project wins have boosted the order book from R35.4bn to R43.1bn.
- Group margins have been negatively impacted by Australia for a number of years. With the potential sale of Probuild and exit from infrastructure in the eastern region of Australia, WBHO should start to regain normal margins through FY21.
- Market share gains in South Africa and signs of a pickup in infrastructure work should result in order book growth from low levels, with gas-related work in Mozambique providing African growth.
- We remain positive on WBHO and see upside in just a return to normalised levels. Should large projects cone back in SA and Africa, WBHO would regain its ability to negotiate projects and boost margins.