WBHO weighs offer to buy one of its big revenue generators
Australian business Probuild helped WBHO survive even as other construction stocks faded
Wilson Bayly Holmes-Ovcon (WBHO), the largest remaining construction firm on the JSE, said on Wednesday it is mulling an unsolicited offer for its Australian business, which helped it survive even as other JSE construction stocks faded.
The offer came from a “major international construction and civil services company”, the group said. Talks are still at an early stage.
WBHO offshore diversification has helped it weather a local industry beset by declining infrastructure spending and low economic growth. The group’s share price has only fallen about 9% over the past five years, while peers such as Basil Read and Group Five have gone into business rescue.
Aveng and Murray & Roberts, the other former leading construction companies, have sold their local construction assets and exited the industry. Esor and Group Five will delist from the JSE later in June.
WBHO entered the Australian market in 2001 after acquiring an initial 40% interest in Probuild, which it has steadily increased to 88%.
Probuild had brought in about R8.5bn of the group’s R23bn revenue for the six months to end-December, while WBHO’s contribution from international operations has risen over the years, with SA contributing only about 26% to group revenue in its six months to end-December 2019, from about 60% in its 2007 half year.
WBHO’s order book in Australasia has also grown rapidly, from R7.7bn in its 2011 financial year, to R23.2bn as of April 2020.
WBHO’s foray into Australia has experienced setbacks, however, and the group has suffered hefty losses related to its contracts, notably for a massive roads project in Melbourne, which the group has previously described as its biggest mistake in 50 years.
The group announced that it had mispriced the contract in its half-year results to end-December 2018, when it reported that it had made a A$50m (R591m) loss provision related to the contract. It recognised a further A$20m provision in its interim results to end-December 2019.
WBHO warned on Wednesday the project had seen further delays, and costs, “as a result of delayed design completion, the discovery of unknown services, unidentified contaminated soils and the performance and profiteering of utility owners as well as their subcontractors”.
WBHO said, however, it was optimistic about the long-term fundamentals of Probuild and its longer-term growth prospects in the Australian market, and was still in talks over the offer, which is conditional and non-binding.
WBHO’s offshore diversification had certainly paid off, while peers had gone through protracted and difficult restructuring exercises, said David Metelerkamp, senior economist at research group Industry Insights.
“They had a lot better foresight in terms of the listed contractors in terms of SA’s outlook, and were far more proactive then the others in going offshore,” said Metelerkamp.
SA’s construction outlook still looked bleak, and though the government was considering hefty infrastructure spending to offset the effects of the Covid-19 pandemic, it was unlikely to be able to afford much stimulus, he said.
The outlook for the sector also varied, said Metelerkamp, with spending on roads and water infrastructure picking up a little, while those building malls or office blocks faced bleak prospects.
In a separate trading update on Wednesday, WBHO warned that headline earnings per share for its year to end-June are expected to be at least 150% lower than the year-earlier period.
“WBHO is aware of the immense pressure that Covid-19 will undoubtedly place on the economies of those countries in which it operates, has forecast the impact of these pressures into its future cash flows and is taking all necessary steps to preserve cash reserves,” the group said.
WBHO’s share price gained 2.1% to close at R102 giving the company a market capitalisation of R6.1bn.