Margin uplift imminent

Key message: Raubex has a full order book in the Roads division – and will now selectively bid at higher margins. Capacity looks to be filling up for large roads/civil projects – pricing power is moving back to the remaining large contractors.

  • Raubex reported FY21 results, with revenue increasing by 1.3% and operating profit declining by 24.1% due mainly to Covid-19 lockdowns. HEPS declined 49% to 81.9c. A final dividend of 29c was declared (policy of 3X cover going forward).
  • Cash generation from operations was very strong at R1.33bn as working capital declined. Advance payments from the Beitbridge Border Post project (US$23.6m) and others boosted cash.
  • Materials: Revenue down 10.8%, operating profit down 17.9%. Strong demand for aggregates has boosted the commercial quarries in 2H and the resumption of large-scale road works has not yet been seen in demand. Margins recovered to 16% in 2H and seem sustainable. Some large (R3bn) mining projects are under adjudication and could boost revenue.
  • Roads & Earthworks: Revenue up 9.7%, operating profit of R10.4m. Some large SANRAL contract wins boosted revenue in 2H as SANRAL work normalises, tender activity still high. Raubex will now selectively bid for road work at higher margins. Asphalt and bitumen should pick up from 2H22 following the road contract wins.
  • Infrastructure: Revenue up 3.5%, operating profit up 70.7%. 2H saw a strong recovery in commercial and housing operations and renewable energy projects (although these are coming to an end). Round 5 renewable bids are being priced. A loss-making contract in Cameroon cost R95.4m.
  • Strong order book growth (5 SANRAL projects worth over R6bn and the US172m Beitbridge Border Post project) has allowed Raubex the luxury of now bidding selectively at higher margins as future revenue is secured.
  • With revenue and margins increasing we increase our Target Price to R36.10 (from R30.52) and maintain an Overweight position.

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