Key message: Diversity of earnings has helped replace the high-margin Beitbridge project and sets Raubex up for sustainable growth.

  • Raubex reported FY24 results. HEPS increased 21% on a 14% and 20% increase in revenue and operating profit. A dividend of 155c (3x cover) was declared for the year.
  • Raubex has successfully replaced the high-margin Beitbridge project work and has been able to grow earnings off this high base. The diversity that Raubex has built up over the years is paying dividends and should help protect against the inherent cyclicality in the construction sector.
  • The order book increased to R25.5bn (from R20bn) with growth in all divisions. The risk profile in the order book remains low with projects starting to be selectively bid. SANRAL does seem to be getting back to a more regular tender award process and combined with other road and building/civil work the scope for further order book growth is looking promising.
  • The strategy for the next few years is to achieve steady state operations at Bauba and recover the cash invested in the business. Activity levels in the road sector are looking more optimistic with a good mix of SANRAL, private concessionaire and provincial spending expected to create good work for the next 5-8 years. This should help grow volumes in the construction materials businesses.
  • We had been cautious on Raubex due to the move in new directions (mining, Western Australia) and uncertainty over SANRAL delays. The construction sector has historically struggled to diversify successfully, and some track record is required to prove that it is sustainable.
  • We do believe that Raubex has now largely proved that the diversification process has lowered overall risk and reduced cyclicality. The ability to grow after the hugely profitable Beit Bridge project came to an end is visible proof.
  • Our modelling has been quite conservative for Raubex due to the change in the earnings mix through the diversification process. We do believe that we can take a more positive outlook on the order book and margins now and that does reflect in our earnings update post these results.
  • We increase our FY25 and FY26 HEPS by 23% and 27% and our Target Price rises to R40 (from R32.50).

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