Group Five to set the tone

Johannesburg - Group Five will be the first of the JSE-listed construction heavyweights to release results - it will do so on Tuesday next week - and analysts believe it should give the market a good indication of the state of the construction sector.

Counters in the sector have over the past year been hammered, as new investors flocked out of equities into safe haven assets as liquidity concerns spread fear over the world.

Major contracts - particularly multi-billion rand jobs in the Middle East - were scrapped, raising concerns about the construction sector.

Imara SP Reid analyst Stephen Meintjes says many in the investment community have been negative about the sector because of concerns that government can't maintain its infrastructure programme. The sector has also taken a bath because of contract cancellations in the Gulf as well as the scrapping of Eskom projects.

In December and January, Group Five and Murray & Roberts announced cancellations amounting to more than R10bn in Dubai. Group Five said the suspension and the cancellation of up to R4bn worth of contracts in Dubai had a negative impact on its order book.

"Although the cancellation of contracts had no impact on the results for the period under review, the impact will affect second half [of the financial year] 2009 and 2010 in the form of lost revenue and future operating profit," it said.

In addition, state-owned power utility Eskom announced late in 2008 it had also put its multi-million rand nuclear plans on hold.

East European succour

This contributed to a sharp sell-off in the sector.

"I'm not saying this shouldn't have been a reason for concern, but I think it was a bit overdone," said Meintjes.

Still, Group Five earlier advised that its fully diluted earnings per share should be between 20% and 30% higher - between 455 cents per share to 493c/share - for the year ended June 2009.

Meintjes said: "So there's not much to worry about there. I'll be looking at the size of the order book, how orders are coming in and how many have been cancelled."

Another analyst told Fin24.com: "We're expecting earnings to go up quite significantly. This is quite interesting when Aveng is going backwards and Murray & Roberts is not doing as well, so it's going to be interesting to see where the growth is coming from [in Group Five]."

Aveng said earnings per share will be between 15% and 20% lower than the corresponding period, while Murray & Roberts said diluted earnings per share for the same period will increase by 15% to 20%.

A commentator said Group Five's order book will probably be smaller than in the previous period, and investors will be interested in what new work the company has won. "But it is not as large as Murray & Roberts, so if it gets a few R500m jobs it might just do the trick to get its order book going," he said.

Group Five's focus on a massive toll road project in Poland could also help the order book, according to another analyst.

- Fin24.com