Murray & Roberts warns of earnings fall on Middle East business exit
The magnitude of the expected headline earnings per share loss disappoints analysts
Murray & Roberts will exit its Middle East operations after failing to sell them during its disposal of the infrastructure and building business.
But the shutdown of those operations is expected to affect the construction firm’s full-year results negatively.
The company sold the infrastructure and building business to a black-owned consortium led by the Southern Palace Group for R314m in 2016. The Middle East operations were not included as the buyer was not interested in them.
In a trading statement released on Monday, Murray & Roberts said the board had decided that the most prudent action would be to walk away from the business in the Middle East once all construction activity had been completed at the end of the 2017 financial year.
"Closure of this business is very costly mainly due to increased cost associated with the remaining construction work on the last four projects, as well as an unfavourable arbitration ruling on a subcontractor claim on a project which was completed in 2011," it said.
As a result, the group warned that headline earnings per share for the year to June 2017 would drop more than 20% from the 158c reported in the year-earlier period.
Electus Fund Managers equity analyst Mish-al Emeran said the magnitude of the loss was greater than the market had expected, "so overall, it’s a disappointing trading statement".
One of the few positive kernels in the update had been the announcement that the underground mining business was turning the cycle with Murray & Roberts expecting strong growth over the near term, Emeran said.
"There were a few concerns. The power and water platform lost out on a recent tender to a Chinese competitor and the next major power project opportunity is only in 2018 some time," Emeran said.
The open-ended nature of the trading statement implied that earnings could ultimately be much lower, he said.