Key message: Actively managing down the order book should improve the quality of earnings. Signs of a recovery in the mining sector is a positive for WBO.
- WBHO released FY21 results. HEPS swung back to profitability with reduced loses in Australia off an 11% decline in revenue (14% increase in South Africa and 26% increase in Rest of Africa). Revenue from Australia and the UK declined 24% and 15% respectively.
- A dividend was paid after passing the dividend at the interim stage – the final dividend was equivalent to a full year (3 times dividend cover).
- Improved activity levels in South Africa are important for WBHO as it remains a preferred contractor for the private sector. Signs of activity from the building and mining sectors are encouraging for growth.
- High activity levels in Mozambique for gas infrastructure projects will not be repeated this year and activity levels in the Rest of Africa are likely to decline, although signs of mining activity are emerging.
- WBHO is managing down the Australian business to focus Probuild on Victoria and NSW only. This will reduce the size of the business to 50-60% of its peak, in our opinion. The order book has reduced substantially as a result of this and Covid-related restrictions. Margins are likely to be depressed as retrenchment costs in Australia are high. Further cost provisions taken in FY21 for WRU (A$28m), 443 Queens (A$12m) and other (A$6m) exceeded the reported loss – but margins are expected remain positive but low for FY22.
- The UK order book has also declined, although some new orders were picked up post period end. The London region is showing signs of renewed activity although Manchester remains slow.
- Overall, WBHO is targeting a higher quality order book (especially in Australia) and as a result we forecast revenue to decline by 9% in FY22. However, margins are expected to grow and we update our HEPS forecast to 1230c.
- We are encouraged by the growing activity levels in the private sector in South Africa, as it allows WBHO to concentrate on securing only quality work in the offshore divisions. With the general demise of the large contractor sector WBHO is likely to grow market share and start to regain some pricing power. We adjust our Target Price marginally to R144 (from R145) based on FY22 earnings.