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Wednesday, November 11, 2009 |
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Stefanutti Stocks continues to deliver growth
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JSE engineering and construction group Stefanutti Stocks maintained a strong performance for the six months to 31 August 2009 (“the period”) despite tough economic conditions. With good organic growth and the successful integration of prior acquisitions including the 2008 merger with Stocks, the group reported increases in revenue and operating profit of 56% and 46%, respectively. In terms of its dividend policy Stefanutti Stocks declared its first interim dividend of 25 cents a share. An order book of R6,6 billion at August 2009 has set the group on track to meet full year targets.
Revenue of R4 billion increased from R2,6 billion in the comparative period, with operating profit growing to R257,1 million from R176,3 million. Net profit after tax increased by 39% to R198,1 million. Headline earnings of R195 million translated into headline earnings per share (“HEPS”) of 111,2 cents, up from 90,4 cents at August 2008.
CEO Willie Meyburgh says Stefanutti Stocks’ healthy financial position provides a solid foundation in the current economic climate. Nonetheless he is realistic about the future impact of market conditions on the group, and expects shrinking tender margins and fewer contracts due to the lack of project funding in the market to present challenges going forward.
The group’s Structures business unit overcame a smaller tender pool and pressure on margins to shine during the period. Meyburgh attributes its strength to a focus on large-scale government projects. He remains confident that the full year budget will be achieved. In the marine sector Structures won major contracts for the Chemical Berth at Richards Bay and for the Ben Schoeman Dock in Cape Town (in joint venture). He says although the marine sector remains buoyant, the general local construction industry is suffering which means the business unit will continue to look cross-border to Africa for growth.
Building successfully restructured operations to perform commendably in the face of depressed markets in the Cape and Botswana. Meyburgh says opportunities in Gauteng, KwaZulu-Natal and Mozambique helped offset this regional decline, vindicating the geographical expansion programme over the last year. However, he points out that poor market conditions are starting to dent current tender margins and he expects this to continue. Against stacked odds the Housing operation is faring well with almost the full 2011 order book in hand - institutions building houses, often for their employees, are offering a growth avenue for the operation.
Mechanical, Electrical & Power was hit by contract cancellations when the commodities market dropped and mines halted expansion plans. However, Meyburgh says other contracts are making up for this and the introduction of new products is expected to spur growth. Mining Services focussed on the future when it purchased Waste Energy Recovery Management during the period to augment its foothold in the coal mining sector.
“Growth in Roads & Earthworks was driven mainly by roads and road rehabilitation projects,” says Meyburgh. The business unit secured two new major contracts following the completion of the Rea Vaya Bus Rapid Transport project in Johannesburg and the Sikhupe Joint Venture for the Swaziland Airport. Looking ahead he says the business unit will seek to participate in the next phase of the Gauteng Freeway Improvement Project in 2012.
Concessions – the group’s business unit offering public-private partnerships to accelerate services delivery for government – is being impacted by the lack of available credit and Meyburgh is concerned the roll-out of projects may be delayed as a result. However, he believes that the group’s experience in this market, having just completed the SADC headquarters in Gaborone, will help generate further group participation in growth areas such as toll roads and municipal infrastructure projects.
Internationally Stefanutti Stocks diversified out of Dubai when the region was dealt an economic blow, venturing into Abu Dhabi and Bahrain and now eyeing Qatar and Oman where development is ongoing. Although the Middle East market remains flat, the group is confident that establishing general construction operations in the region is the right move to capitalise on a future upswing.
Meyburgh is cautious going forward. He emphasises that margins will contract further as competition escalates in the market, and securing new work will be more difficult in the immediate future. He nonetheless remains optimistic regarding certain prospects. “The group’s alignment with the public sector should see growth, particularly in municipal services such as waste management, water purification and sanitation in addition to the rail, pipeline and renewable energy sectors.” He concludes that aggressive marketing strategies across the group are expected to help secure opportunities, and says management is on the constant lookout for appropriate acquisitions.
Stefanutti Stocks’ share closed yesterday at R11,00.
Ends.
Issued by: Nicole Katz/Michèle Mackey
(011) 325 5944/082 497 9827
On behalf of: Stefanutti Stocks Holdings Limited
Willie Meyburgh, CEO
011 571 4300
Share Code: SSK
Issue date: 11 November 2009
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