Key message: SANRAL tender cancellations and REIPP delays create uncertainty over order book growth.
- Raubex reported FY22 results, with revenue and operating profit increasing by 31% and 159% respectively. HEPS increased 263% to 297.4c. A final dividend of 54c was declared (normalised cover of 3 times restored).
- Materials: Demand from commercial quarries is under pressure, declining post YE. The Mozambique gas project may start up again, and the R33m stockpile provision may be reversed. Capex was high with the investment into mining operations.
- Roads & Earthworks: just as margins were starting to increase as tender activity was on the up, SANRAL unexpectedly cancelled R18bn of tenders. While Raubex can maintain work levels for 18 months, order book replacement is now a concern.
- Infrastructure: Raubex is well positioned for the current renewable programs although the REIPP Round 5 has seen repeated delays and may only impact later in FY24.
- The US$172m Beitbridge Border Post project in Zimbabwe is fully under way and should contribute meaningfully in FY23 and into FY24. The project is split between the Roads & Earthworks and Infrastructure divisions.
- The order book increased slightly to R17.13bn (Aug 2021: R16.55bn), with smaller SANRAL projects (<R300m projects are still being awarded) able to counteract the project burn rate of R50m/day.
- While we had previously believed that order book growth in FY23 will likely grow substantially due to pending large SANRAL adjudications and the REIPP Round 5 renewable energy projects, delays in both could now create some order book pressure in FY23 and possible FY24.
- The expectations of margin expansion as road construction capacity becomes saturated has now reversed as contractors will look to replace cancelled projects with other work.
- Unfortunately for Raubex, its order book outlook is highly dependent on government. Faith in tangible progress in public sector infrastructure is declining, and this will impact Raubex’s earnings outlook. We consequently decrease our Target Price to R38.70 (from R40.00) and pull our recommendation to Neutral.