Gvt R45bn spree to buoy Sea Kay

Johannesburg - Government plans to spend R44.8bn on housing, unveiled in the national budget earlier in February, will provide low-cost housing construction firm Sea Kay with a two-year shot in the arm, the firm said on Thursday.

"With government's intention to spend R44.8bn on housing, the group's low-cost housing construction activities are expected to expand in the second half of the financial year," the company said in commentary to its half-year financial results.

"Crucially, trading activities would also expand into 2009/2010," it said. The market was unmoved by Sea Kay management's comments, however. The company's share price, which has a market capitalisation R479m, was unchanged at 98c/share.

Sea Kay posted an increase in headline share earnings to 784c/share against 610c in the corresponding period of the previous financial year. The operating margin increased to nearly 19% as subsidies on housing units were higher, and an internal efficiency drive kicked in.

"Certain National Department of Housing priority projects received special mention in the budget speech, which included the N2 Gateway project where the group is involved in the construction process of over 5 000 houses," the company said. "Another allocation to Sea Kay Engineering of at least 2 000 houses is also expected on that project," it said.

Sea Kay is also focusing on securing a healthier pipeline of projects. It has been involved in discussions with other companies regarding mass housing projects, it said. "The group therefore expects continued strong growth for the remainder of the year."

However, it wasn't all plain sailing. Economic conditions crimped the ability of banks and financial institutions to fund projects and provide capital to businesses and individuals.

As a result, there was a slowdown in the delivery of houses in the GAP or credit link market - houses in the R200 000 to R380 000 range - and property development projects, the company said.

Lonerock a promising asset

"Trading conditions were difficult during the period."

Sea Kay said it would establish a costing office to improve the normally slower payment terms in the low-cost housing market.

The office would be staffed with a quantity surveyor "with vast experience in the construction environment", who would help speed up collection of debts.

"Dedicated staff to speed up government payments had been identified and linked to relevant officials at government offices for this purpose," it said.

Sectoral spending would increase in the second half of Sea Kay's financial year as that's when government-related spending improved, it said.

The civil engineering and low-cost housing sectors were expected to provide continued growth in the short term, while the GAP and bonded housing market is likely to stay under pressure at least until the end of 2009.

Sea Kay Engineering and Lonerock, a recent acquisition, were well positioned to take advantage of the high government spending on infrastructure development across the country, the company said.

"The results represent a significant improvement compared to those of the previous period, mainly due to the Lonerock acquisition."

Cash generated from operations during the period totalled R53.9m compared to a cash outflow of R75.5m at December 2007. This was achieved by focusing on speedier debtors' collection and positive inflows from Lonerock's customers.

At the end of the period, the group was cash positive with a balance of R61.8m compared to an overdraft of R4.6m at December 2007.

- Fin24.com