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The well-worn road

Raubex’s disappointing results are a good indicator of what will be happening to everyone else exposed to the roads sector. Raubex Group [JSE:RBX], Wilson Bayly Holmes - Ovcon [JSE:WBO] and Basil Read Holdings [JSE:BSR] are all in for some pain, according to these results. The group reported headline earnings loss of more than 25% to 240,20c/share as profit margins were pulverised over the 12 months to end-February.

Every builder with a bakkie full of asphalt seems to have rushed in on the only building sector still showing some real activity. Raubex’s Roadmac division – its biggest contributor to revenue – was particularly hard hit by the increase in competition and reported a 26% drop in operating profit. Major road building projects are also drying up: the Gauteng Freeway Improvement Project is winding down and the start of the N1/N2 Winelands toll road project has again been delayed. Judging by the recent uproar by Gauteng residents about the high toll fees, Government may have to relook its budget before bringing that make or break project to the table.

Why I currently like this company is because its cash position is strong, with R500m in the bank and the rest of Africa waiting with open arms for roads infrastructure. SA’s Government has also earmarked billions of rand for road construction and maintenance. The share – at 1955c – is looking cheap, with an earnings multiple of 6 against its peers, with multiples of between 5 and 11.

However, according to an analyst, companies exposed to road building are lagging the rest of the sector in terms of earnings. Where the rest of the construction industry’s share prices have most likely reached a trough, Raubex, WBHO and Basil Read are yet to experience that turning point. We suggest investors hang in there and pounce on these shares the moment the industry shows an up-tick.

Wessels holds shares in Raubex
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