Key message: Back to the low risk contracting model, the order book outlook looks promising for a margin uplift.
- WBHO released 1H FY24 results. Overall revenue and operating profit increased by 29% and 30% respectively with the operating margin flat at 4.8% as lower Building & Construction margins were balanced by higher UK margins. HEPS from continuing operations increased by 12% to 906c (from 819c).
- Building & Civil Engineering (Rev up 19%, OP up 5%): Building revenue grew by 9% (14% Gauteng and 6% Coastal) driven by data centres, commercial office and residential projects in Gauteng and industrial and warehousing activity in Coastal. The sector remains competitive with exposure to retail and residential resulting in a lower margin. Civil work increased substantially after a slow period with activity in mining and energy. Activity at the gas project in N Mozambique is also starting again.
- Roads & Earthworks (Rev up 59%, OP up 69%): Work procured in FY23 contributed to South Africa (mining and roads) and Africa (energy and roads).
- UK (GBP: Rev up 2%, OP up 30%): Good margin recovery with increased activity in Russell WBHO. However, many projects are being cancelled due to the challenging environment. Byrne remains active, but slow London construction markets impacted Ellmers and O’Keefe.
- The total order book remained flat despite the elevated volume of work executed. Order books across all regions and divisions have remained resilient, with South Africa looking very healthy. The pipeline opportunity is substantial and order book growth is likely in future. Margin expansion should occur as the large contractor sector tightens with the growing project pipeline.
- WBHO is back to business as usual (low risk contracting mainly to the private sector). Its position as preferred contractor to the private sector puts it in a competitive advantage and ensures a high quality low-risk order book.
- Our Target Price increases to R172 (from R143) with good order book growth potential and WBHO refocusing on its core strengths. The balance sheet has recovered well after the losses in Australia, and WBHO has resumed dividend payments.