Pipelines are so hot right now. The latest construction firm to announce it’s gunning for the water infrastructure jobs so sorely needed by the average South African citizen is Stefanutti Stocks. The group has acquired Cycad Pipelines, a 22-year-old specialist pipeline construction contractor based in Springs.
However, the market didn’t like that little announcement much. The share dropped by almost 4% after the news was made public. The now two-year-old concerns about the sector are clearly still attracting some airtime: heightened competition, lower margins and few new tenders coming to the market.
Once everybody calms down they’ll start to notice some encouraging numbers. The R306m price tag will be paid in cash, plus some borrowings. And with a war chest of more than R1bn it should be a walk in the park. Stefanutti also knew overpaying for an acquisition – something of a theme during the heydays a few years ago – would be pounced upon by an already-negative market. Cycad’s order book sits at a tidy R527m, so it’s already getting some work.
Analysts are concerned about the competition in the pipelines sector. Fair enough: few tenders have come to market. Just look at the ferocity with which the Western Aqueduct project has been fought over by Sanyati and Esorfranki. But then there are still only a few players with serious pipeline capabilities in the sector; many others are content using other companies in joint venture projects.
This deal looks good on paper. Billions of rand will have to be spent on SA’s ailing water infrastructure, and Stefanutti is a well-respected, well-performing company despite general industry headwinds.
However, the market didn’t like that little announcement much. The share dropped by almost 4% after the news was made public. The now two-year-old concerns about the sector are clearly still attracting some airtime: heightened competition, lower margins and few new tenders coming to the market.
Once everybody calms down they’ll start to notice some encouraging numbers. The R306m price tag will be paid in cash, plus some borrowings. And with a war chest of more than R1bn it should be a walk in the park. Stefanutti also knew overpaying for an acquisition – something of a theme during the heydays a few years ago – would be pounced upon by an already-negative market. Cycad’s order book sits at a tidy R527m, so it’s already getting some work.
Analysts are concerned about the competition in the pipelines sector. Fair enough: few tenders have come to market. Just look at the ferocity with which the Western Aqueduct project has been fought over by Sanyati and Esorfranki. But then there are still only a few players with serious pipeline capabilities in the sector; many others are content using other companies in joint venture projects.
This deal looks good on paper. Billions of rand will have to be spent on SA’s ailing water infrastructure, and Stefanutti is a well-respected, well-performing company despite general industry headwinds.