Johannesburg - This week sees the start of construction firms' interim results with Wilson Bayly Holmes-Ovcon (WBHO) leading the way, but trading updates are already pointing to a loss of momentum in earnings.
BoE analyst Leith Wimble said: "In the results, we'll essentially see some of the tailwinds of the last 18 months, reflecting 2010-related work. The fact that WBHO's earnings are expected to be higher is no indication of what is expected in the 2011 financial year."
WBHO expects earnings per share (eps) and the headline earnings per share (heps) to be between 15% and 20% higher for the six months ended 31 December 2009 than the previous corresponding period. Its results will be released on Tuesday.
"The results for the first half of the 2009 financial year were appreciably lower than those achieved for the second half of that year. It is therefore unlikely that the increase in earnings above will be maintained for the full 2010 financial year," it said.
According to analysts, WBHO is taking a cautious stance and want to pursue private public partnerships for further work as they wait for the residential building market to recover.
They expect operating margins across the SA operations will benefit from the profit earned on big projects like airports and stadia, which WBHO has completed and handed over between 2009 and 2010. Margins from work on African road and earthworks projects are expected to normalise from unsustainably high levels
But Wimble warned the market shouldn't expect a positive set of results for the next financial year.
"Momentum in earnings will begin to stall, and share prices have already reacted.
"The market has to consider the base companies earnings are operating off, as they've previously had record order books and margins."
Imara SP Reid's head of research Stephen Meintjes said: "Obviously there'll be much lower growth. We also had Murray & Roberts in particular with problems, which I presume is with Gautrain and cost overruns."
Initially, Murray & Roberts shareholders were advised in a trading statement published on SENS in November 2009 that for the first half-year to end-December 2009, diluted heps and diluted eps were expected to be between 15% and 20% lower than the previous comparable period.
But in mid-February, the group said a number of factors outside the control of the group were affecting working capital and financial performance in the current financial year, which introduced uncertainty to finalisation of the interim financial statements.
"In preparing the financial statements, the group is assessing the extent of working capital relative to certain major projects and the recognition of revenues to which it is entitled but are as yet uncertified. These revenues are only recoverable in the future through the resolution of claims for change in scope, delay and disruption in terms of the various contracts.
"This has introduced uncertainty to finalisation of the financial statements for the half-year and the group is unable at this time to give a precise indication of the extent to which any revenue impairments might increase the already notified 20% reduction in heps and eps compared to the previous comparable period."
Murray & Roberts is expected to publish its results on Wednesday.
The following week, Group Five is expected to release its results that should show eps and Heps rising by between 0% and 10% for the six months to end-December.
Government spending
There is a ray of hope amid the gloom. Meintjes said the budget has shown government has recommitted to its infrastructure spend programme.
"But the real question though is whether they'll do what they say and pay for it. But the point is that they have continued to commit to it, and are still budgeting for it."
He said the bulk of the spending is yet to come, especially with primary and secondary roads, and prison construction tenders - which were originally muted - are now coming to market. However, companies have said tendering for these contracts is a lot keener. Eskom also has huge spending to do, he said.
"Also, we are coming out of a recession, which is good for the private sector, but it'll still take some time for the private sector to recover and spend money on infrastructure."
- Fin24.com