Key message: Management point to entering a multi-year period of strong earnings growth, which concurs with our forecasts. Delivery on the strong order book will be the key valuation factor going forward.
- Murray & Roberts released a trading update. Management expects meaningful earnings growth in FY22 and in the medium term based on the strong order book.
- This is in line with our current forecast – the total order book of R60bn has been maintained from the same level in June 2021 even with revenue generation of R2-2.5bn per month.
- Order book prospects remain good, with a R20bn project award expected in FY22 along with a number of other sole-source basis projects.
- ERI: Order book on 30 September 2021 R37.2bn (30 June 2021 37.0bn). Management state that significant revenue has been secured for FY22 and FY23 – and at our forecast of an operating profit margin of 3.4% and 4.1% respectively (gross margins bid at approx. 8-10% and overheads of A$90m) the profit contribution from ERI is expected to be substantial.
- Mining: Order book on 30 September 2021 R20.8bn (30 June 2021 23.2bn). The termination of the Kalagadi Manganese mining contract has impacted the order book. Order book growth is expected from the Americas in 2H FY22, with profitability increasing in FY23. We forecast an operating margin of 5.0% and 5.3% for this division over the next two years.
- PIW: Transmission line tenders are a possibility for order book growth, and a solar business has been established for industrial PV opportunities.
- Bombela: Gautrain ridership remains low with ridership of approx. 16 000 passengers per day (pre-Covid 55 000).
- No specific earnings guidance was provided but Murray & Roberts is in a multi-year growth phase.
- Our Target Price remains at R17.40.