Wilson Bayly Holmes-Ovcon Ltd 28 September 2017
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Contents 1. Recommendation 2. Nature of business 3. Financial review 4. Divisions 5. Company guidance 6. Portfolio Guidance 3
01 Recommendation 4
Recommended exposure 5.14% Quality construction company Strong cash generation Consistently high ROEs Cyclical nature of the construction industry Geographical diversification of income streams Exchange rate susceptibility Earnings growth in the medium term Order book remains healthy Share offers value Decent dividend yield 5
02 Nature of business 6
Nature of business The company is listed on the securities exchange operated by JSE Limited and is the holding company of a number of subsidiary companies principally engaged in civil engineering and building contracting activities in the Republic of South Africa and internationally. 7 Source: http://www.wbho.co.za
03 Financial review 8
Financial review Revenue increased by 4% to R31.9bn Revenue geographically: - Australia contributed 58% (2016: 59%) - South Africa 36% (2016: 32%) and - Rest of Africa the remaining 6% (2016: 9%) Adjusted EBITDA rose by 6% to R1.1bn 18% drop in the depreciation and amortisation expenses 14% increase in adjusted operating profit to R909m Slightly higher operating margin of 2.8% (2016: 2.6%). Geographically: Operating profit geographically: - South African operations contributed 46% (2016: 35%) - Australia 30% (2016: 30%) and - Rest of Africa 24% (2016: 35%) Healthy recovery in South Africa s profitability which rose 37% Source: http://www.wbho.co.za 9
Financial review EBIT declined by 17% to R826m - R170m settlement agreement Profit before tax came in 11% weaker at R1.1bn - Net interest income being up 19% to R241m Headline earnings was 7% lower at R751m - benefitting from an 18% lower tax expense of R315m Effective tax rate was 30% (2016: 32%) Source: http://www.wbho.co.za Diluted HEPS from continuing operations decreased by 3% to 1309 cents - supported by a 2% decline in the weighted average number of shares Adjusted HEPS, which excludes the settlement, was up by 14% to 1537 cents 10
Financial review Cash generation was once again strong Gross final dividend of 325cps (2016: 313 cents) was declared - Full year dividend of 475cps (2016: 448cps). WHBO secured an order book of R44.9bn (2016: R42.7bn) - Australia operations accounting for 70% (2016: 72%) of the order book - South Africa 26% (2016: 25%) and - Rest of Africa the remaining 4% (2016: 3%) 11
04 Divisions 12
Divisions Segmental overview: Operating Profit Revenue Operating Profit Revenue 13
Building and Civil Engineering: (Contributed 25% to revenue and 39% to operating profit) Record levels of revenue, which increased by 8% to R8.1bn Operating profit increased by 4% to R385m Slightly lower operating margin of 4.7% (2016: 4.9%) Secured an order book of R7.2bn (2016: R8.7bn), a decrease of 17.2%. Building: Activity in Gauteng was underpinned by major retail, commercial office and entertainment sector developments Commercial office sectors remained highly active and concentrated in Gauteng Activity from retail developments remained stable In Ghana, the replacement of projects proved challenging 14
Building and Civil Engineering: (Contributed 25% to revenue and 39% to operating profit) Civil Engineering: Revenue remaining flat for the year H2 revenue improved BRT cable stay bridge. Source: http://www.wbho.co.za 15
16 Road and Earthworks: (Contributed 14% to revenue and 35% to operating profit) Revenue increased by 6% to R4.6bn Operating profit increased by 21% to R342m Higher operating margin of 7.4% (2016: 6.5%) Order-book secured was higher at R6.2bn (2016: R3.0bn) Local operations mainly comprised of countrywide roadwork and a resurgence in local private sector projects Performance of Edwin Construction was impacted by minimal activity from the provincial road sector Local private sector projects were secured in the mining, energy and logistics sectors In Botswana, the division managed to secure projects in the mining sector and a new pump station In Mozambique, the division struggled owing to projects for various coal mines that were completed early in the year not being replaced Road sector division secured a further section of the EN4 West Africa showed some improvements
17 Australia: (Contributed 58% to revenue and 26% to operating profit) Revenue grew by 3% (5.5% in dollar terms) to R18.6bn Operating profit, excluding equity-accounted development profit, decreased to R259m (2016: R300m) Operating margin eased marginally to 1.4% (2016: 1.7%) Order-book secured improved to R31.5bn (2016: R31.0bn), an increase of 5% Building market remained strong Melbourne and Sydney contributed 68% of revenue Multi-level residential projects underpinned activity Higher activity in the hotel sector Commercial sector contributed 11% to revenue In Melbourne, prominent residential projects Projects in Sydney In Brisbane, residential activity has been slowing down for the year Queensland business struggled Mid-size commercial projects in suburban areas, along with medium density luxury apartment projects
Australia: (Contributed 58% to revenue and 26% to operating profit) Revenue from the Australian infrastructure business increased 63% to AU$195m Driven by the presence in the renewables sector. Opportunities to grow revenue Eastern region secured two new contracts Western region was a strong contributor for the year Source: Probuild 18 Source: Probuild
Property: Revenue fell by 88% to R2.3m Operating loss was R1.5m (2016: operating profit of R14.7m). 19
Construction Materials: (Contributed 2% to revenue): Revenue declined by 11% to R579m Operating profit declined significantly to R2m (2016: R37m) Operating margin was lower at 0.4% (2016: 5.6%) 20 Source: http://www.rms-sa.co.za Source: http://www.rms-sa.co.za
05 Company guidance 21
22 Company guidance Group s order book secured at 30 June 2017 increased by 5.1% to R44.9bn Good diversification of the Australian order book Projects secured after year end amounted to R11.7bn Project pipeline South Africa totals R55.3bn Building (R20.9bn) Civil engineering (R12.5bn) Roads and earthworks (R21.9bn) Rest of Africa totals R20.2bn Building and civil engineering (R3.2bn) Roads and earthworks (R17.0bn) Australia totals R55.9bn Building (R43.5bn) Civil engineering (R12.4bn) 40% interest was made in the Byrne Group for a consideration of 12m 90% interest of the voting equity in Grindrod Rail Construction Company (Pty) Ltd was acquired for R62.3m through the purchase of shares Group has been rebranded as ikusasa Rail
06 Portfolio guidance 23
Portfolio Guidance Value Capped SWIX All share weighting of 0.14%. Overweight guidance Recommended exposure of up to 5.14% Quality Confidence Good Neutral Poor WBO 24
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