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Johannesburg - With the wrap-up of World Cup projects under way, analysts have said 2010 will be one of the toughest years for construction firms.
"As far as construction work is concerned, this is going to be a particularly tough year for the SA construction industry, if not one of the toughest in history," said Industry Insight's Elsie Snyman.
While some data point towards economic recovery, Snyman said the construction industry generally lags economic growth by anything from 12 to 24 months due to lengthy planning cycles. This means the sector is only expected to show real improvement by late 2011, or possibly even 2012.
SA's gross domestic product rose by 0.9% (on an annual basis) in the third quarter of 2009, from -2.8% in the second quarter, breaking away from the first recession the country has had in 17 years.
Snyman said there is "at least" a glimmer of hope that conditions will start to improve. Provincial governments have allocated R44.6bn over the next three years to the development of infrastructure and housing, and road projects were still under ay.
According to Vestact analyst Sasha Naryshkine, the forward-looking price earning multiples of most listed construction groups are below eight and above six times earnings, which normally indicates a "steal" for investors.
"But no one is willing to put their head on the block, because they're worried that construction firms are facing margin compression and their order books won't be as great as they were two years ago," Naryshkine said.
Murray & Roberts CEO Brian Bruce said at a Gordon Institute of Business Science seminar he was concerned SA didn't have enough "collective faith" in the industry, as market players were pessimistic about prospects for construction following the completion of key projects related to the 2010 Fifa World Cup.
He said: "Most people do not know that we have the single largest power programme under way in SA, with two power stations each in their own right the largest in the world." This - combined with road, rail and other projects - will still keep construction firms busy in 2010 and beyond.
Naryshkine said: "I guess they have to believe that government's R800bn-plus infrastructure spend plan will still take place. I think it will take longer than the three years initially planned, and 2010 will be tough for construction firms which have to compete for them."
- Fin24.com