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Johannesburg - Construction firm Group Five's positive trading statement has helped to lift the share marginally on Friday. However, analysts are concerned that growth could slow down after completion of its 2010 Fifa World Cup?related projects.
Group Five, which is worth about R4.2bn, said on Thursday it expects fully diluted earnings per share to grow between 20% to 30 for the year to end-June 2009.
The company may look expensive after its trading update, as its forward-looking price earnings multiple (PE) ranges between 7.1 and 7.7.
Imara SP Reid analyst Stephen Meintjes said the earnings forecast was "in line" with its expectations of 25%, and that the growth range is more than the 15% to 20% range expected for Murray & Roberts.
"Group Five has reaped profits in recent years thanks to a building boom before the 2010 soccer World Cup, but the slowdown in the global economy has raised concerns about future contracts in the pipeline," said Meintjes.
Vestact analyst Sasha Naryshkine agreed: "Yes, the market is anxious in the short term, but there will eventually be a pickup in mining, and with these interest rate cuts, possibly a pickup in the residential sector too around 2011. The only point is that it will probably be harder to fight for infrastructure projects like hospitals as all the big ticket items constructed for the World Cup are almost complete."
Leith Wimble, BoE analyst, said the market believed the best of the construction cycle is "now a thing of the past" and that margins peaked in 2008.
"When the starting whistle blows for 2010, what is the next infrastructure area? We need continual waves, otherwise we are going to have a pro-cyclical trough at the end of 2010, which we should be a lot more concerned about," an I-Net Bridge report cited him saying.
"The fact that there will be public sector infrastructure projects post 2010 has already been discounted into share prices. The current expectation is that there should be sufficient work to sustain existing order books, but there is no indication to date that there is going to be a steep increase in the amount of work government is able to fund," said Wimble.
- Fin24.com