Key message: WBHO has indicated the end of financial assistance to WBHO Australia, with the impact of putting WBHO Australia into administration. We attempt to assess the cash impact to WBHO of the announcement.

  • WBHO has determined that, with effect from 22 February 2022 it will no longer provide financial assistance to WBHO Australia (WBHOA). This has led the WBHOA board to commence with an application for the administration of WBHOA.
  • Losses on the 443 Queen St project in Brisbane are reported in the Australian media at A$120m (WBHO has already accounted for a A$48m loss). It seems this triggered further cash calls to WBHO South Africa and the decision to walk away and limit further exposure to Australia has been taken.
  • For 1H FY22 WBHO expects to report a loss per share of at least 2532 cents. The headline loss is expected to be at least 1611 cents per share for the period.
  • Losses of 3126c per share linked to WBHOA includes:
    • 1664 cents in respect of the trading losses in Australia, a loss per share of 846 cents in respect of the impairment of goodwill related to the Australian operations and a loss per share of 616 cents in respect of the reversal of deferred tax assets in Australia that are no longer considered recoverable.
  • Excluding these losses, WBHO should report EPS of approx. 594c. Operating profit from both Buildings & Civil Engineering and Roads & Earthworks is expected to be up by at least 15%, while UK profits are down 40% (in line with our expectations).
  • However, assessing the remaining exposure to Australia is not fully clear from the announcements. WBHO will honour the parent company guarantees issued in Australia – we can see that total parent company guarantees for the group at 30 June 2021 was R681m. This may not all be for Australia but gives an approximation of the exposure.
  • WBHOA also had cash balance of A$166m at 30 June 2021. The recoverability of this is uncertain, and it has been maintained by the approx. R2bn equity injection into WBHOA to cover the WRU losses. A certain level of cash is required to satisfy the requirements of lenders and bond providers in Australia. However, WBHO report a cash balance R5.3bn at 31 December 2021 (down from R5.7bn at 30 June 2021). This indicates that WBHOA issues may not have impacted cash balances significantly (assuming this balance includes any impact on cash in WBHOA).
  • An initial forecast of continuing HEPS (excl. WBHOA) for FY23 is 1547c. The discontinuation of Australia does not impact HEPS significantly as expected earnings were low.

Our valuation for WBHO falls to R134 (from R144). This assumes the remaining cash exposure to WBHOA is limited to half of the parent company guarantees (approx. R340m). This is our initial assessment – more details to follow at the results next week.

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