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Sanyati’s year-end results for 2010 read a lot like South Africa’s other constructors’ financial reports. Impairments, lower headline earnings and descriptions of a sector marred by low tender activity fill the pages. The R150m civil engineering and construction group reported headline earnings that fell by just more than 50% to 8,46c. But worryingly, Sanyati Holdings [JSE:SAN] burned through R114m of its cash to change the nature of its projects as the industry’s cheese moved to the roads and water infrastructure sectors in SA.
The few large asset management firms invested in the stock have also sold off chunks of their investments since the building recession hit and margins took a tumble. Sanyati’s pure profit margin fell from 8,6% to 4,8% in the 12 months to end-February as it faced stiff competition from other struggling contractors. Project award delays knocked especially the smaller companies operating in the sector – and Sanyati was no different.
Though SA’s smaller construction groups still have the advantage of being nimble and adaptable to changing conditions, it seems Sanyati was stuck waiting for either the public or the private sectors to start spending again. And it’s still waiting. Its order book – at R866m – is down somewhat compared to last year’s R1bn.
The group is confident of a few imminent awards and has made Sens announcements proclaiming the deal is pretty much in the bag. However, high debt levels, a sword hanging over the entire industry – in the form of the Competition Commission’s investigation and low cash reserves – make Finweek skittish about investing yet.
Sanyati may be a great investment purely because it’s been so severely impacted by negative sentiment about the sector. It’s currently trading at a substantial discount to its tangible net asset value (32c against around 66c). Some investors are sure to make a quick buck when sentiment changes, but that bet is too rich for our blood.
The few large asset management firms invested in the stock have also sold off chunks of their investments since the building recession hit and margins took a tumble. Sanyati’s pure profit margin fell from 8,6% to 4,8% in the 12 months to end-February as it faced stiff competition from other struggling contractors. Project award delays knocked especially the smaller companies operating in the sector – and Sanyati was no different.
Though SA’s smaller construction groups still have the advantage of being nimble and adaptable to changing conditions, it seems Sanyati was stuck waiting for either the public or the private sectors to start spending again. And it’s still waiting. Its order book – at R866m – is down somewhat compared to last year’s R1bn.
The group is confident of a few imminent awards and has made Sens announcements proclaiming the deal is pretty much in the bag. However, high debt levels, a sword hanging over the entire industry – in the form of the Competition Commission’s investigation and low cash reserves – make Finweek skittish about investing yet.
Sanyati may be a great investment purely because it’s been so severely impacted by negative sentiment about the sector. It’s currently trading at a substantial discount to its tangible net asset value (32c against around 66c). Some investors are sure to make a quick buck when sentiment changes, but that bet is too rich for our blood.
