Key message: With the roads order book relatively full, renewable energy offers Raubex further growth opportunities. The announcement of external funding for Eskom from COP26 should unlock public and private renewable energy spend. This is significant for Raubex as the current valuation requires growth in the order book to approx. R20bn.
- Raubex reported 1H FY22 results, with revenue and operating profit increasing by 52% and 1097% respectively. HEPS increased 615% to 137c. An interim dividend of 47c was declared (normalised cover of 3 times restored).
- Working capital absorption was high due to the onset of several new projects (mostly Sanral), but this would be expected as the order book grows.
- Materials: Strong aggregates demand balanced weaker contract crushing activity. We expect demand to grow with a general uplift in the construction sector.
- Roads & Earthworks: All Sanral projects are now under way, with increased demand for asphalt and bitumen. Margins in the sector remain under pressure, although pent up Sanral tender awards may signal the start of a general margin uplift.
- Infrastructure: Raubex is well positioned for the current renewable programs and FY23 could see a significant pickup in activity.
- The US$172m Beitbridge Border Post project in Zimbabwe is fully under way and should contribute meaningfully in FY23. The project is split between the Roads & Earthworks and Infrastructure divisions.
- The order book reduced slightly to R16.6bn (Feb 2021: R17.1bn), but in the absence of new large project wins this is a good outcome (project burn rate of R50m/day). Order book growth in FY23 is likely to be dominated by renewable energy projects (public and private).
- We expect substantial revenue growth into FY23 with ongoing Sanral work, the Beitbridge project and financial close of the current renewable energy bids. Margins should start to expand as industry capacity is likely to start to get stretched.
- The increased certainty around the financial viability of further renewable rounds has a positive impact on our valuation which we roll to FY23 earnings. We increase our Target Price to R40.00 (from R36.10) and maintain an Overweight position.