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Johannesburg - Construction company Group Five [JSE:GRF] said it would target contracts with independent power producers (IPPS), an emerging industry with a local estimated value of R20bn, in lieu of Eskom-related construction work.
Group Five CEO Mike Upton said at the annual results presentation in Johannesburg that timing of government's R846bn infrastructure spend also remained unclear.
As a result, Group Five was negotiating with IPPs on projects in South Africa, Mozambique and other African countries. "IPPs is where the money is now," said Upton.
"Eskom's ability to place orders is still constrained by its ability to fund the Kusile power station project," he said.
Group Five reported a 10% increase in fully diluted headline earnings to 561c per share for the year ended June. Its total secured order book was R9.2bn, compared to last year's R11.6bn. Group Five stocks were 3.46% weaker in Tuesday mid-afternoon trade at R34.32/share.
Longer-term, however, a large proportion of future business turned on Eskom projects. Even R10bn of the IPP spend was related to the state-owned electricity utility. IPP contracts comprise just 8% of Group Five's construction-related order book.
Imara SP Reid analyst Stephen Meintjes said more IPPs were coming to the market, but Eskom's projects are essential to the industry in the long run.
Margins tight
Margins were expected to remain flat in the medium term for Group Five, the country's fourth-largest construction firm.
"We should see marginal improvement in 2011, but we doubt we'll get back to the kind of margins we saw during the building super cycle," Upton said.
Analysts said Group Five's performance could prefigure sectoral challenges. "It will be interesting to see what whether the other large construction firms have been able to maintain their margins, let alone increase them as was the case with Group Five," said Meintjes.
Group Five said it refused to drop its prices to low "ridiculously low levels" in the manner of its competitors.
"Apart from construction materials and engineering projects, business was pretty robust," said Dirk Noeth of Avior Research. "There weren't any surprises – it was in line with expectations and guidance from the company," he said.
Group Five also said it will also focus on its presence in Africa and the Middle East. Currently over 20% of the group's revenues - down 6% to R11.3bn - are from across-the-border work, set to increase more than a third.
"Expansion across Africa is a key competitive advantage because it diversifies exposure away from the sluggish local market even though such contracts may involve greater risk," said a Standard Bank report last week.
Group Five's results were knocked by its construction materials segment, which contributed 1.3% less to group revenue than in 2009. Group Five said it reduced the capacity of this segment to counter lower demand.
A dividend of 137 cents per share was declared.
- Fin24.com
Group Five CEO Mike Upton said at the annual results presentation in Johannesburg that timing of government's R846bn infrastructure spend also remained unclear.
As a result, Group Five was negotiating with IPPs on projects in South Africa, Mozambique and other African countries. "IPPs is where the money is now," said Upton.
"Eskom's ability to place orders is still constrained by its ability to fund the Kusile power station project," he said.
Group Five reported a 10% increase in fully diluted headline earnings to 561c per share for the year ended June. Its total secured order book was R9.2bn, compared to last year's R11.6bn. Group Five stocks were 3.46% weaker in Tuesday mid-afternoon trade at R34.32/share.
Longer-term, however, a large proportion of future business turned on Eskom projects. Even R10bn of the IPP spend was related to the state-owned electricity utility. IPP contracts comprise just 8% of Group Five's construction-related order book.
Imara SP Reid analyst Stephen Meintjes said more IPPs were coming to the market, but Eskom's projects are essential to the industry in the long run.
Margins tight
Margins were expected to remain flat in the medium term for Group Five, the country's fourth-largest construction firm.
"We should see marginal improvement in 2011, but we doubt we'll get back to the kind of margins we saw during the building super cycle," Upton said.
Analysts said Group Five's performance could prefigure sectoral challenges. "It will be interesting to see what whether the other large construction firms have been able to maintain their margins, let alone increase them as was the case with Group Five," said Meintjes.
Group Five said it refused to drop its prices to low "ridiculously low levels" in the manner of its competitors.
"Apart from construction materials and engineering projects, business was pretty robust," said Dirk Noeth of Avior Research. "There weren't any surprises – it was in line with expectations and guidance from the company," he said.
Group Five also said it will also focus on its presence in Africa and the Middle East. Currently over 20% of the group's revenues - down 6% to R11.3bn - are from across-the-border work, set to increase more than a third.
"Expansion across Africa is a key competitive advantage because it diversifies exposure away from the sluggish local market even though such contracts may involve greater risk," said a Standard Bank report last week.
Group Five's results were knocked by its construction materials segment, which contributed 1.3% less to group revenue than in 2009. Group Five said it reduced the capacity of this segment to counter lower demand.
A dividend of 137 cents per share was declared.
- Fin24.com
