Business

WBHO grows order book by 43%, despite Australia exit

JSE-listed construction and engineering group WBHO grew its order book by 43% to R22.2 billion at end-June despite its exit from the Australian market.

WBHO Group CEO Wolfgang Neff said on Tuesday that post its year-end, the group has secured an additional R1.4 billion in new building work and R1.6 billion in new awards within its roads and earthworks division.

Neff also reported growth in private renewable energy opportunities and confirmed that the group’s projects division secured R3 billion in new solar plant contracts in South Africa after the reporting period.

He said the UK is also looking up, with letters of intent received for two projects in London worth just over £100 million (R2 billion) while the group also has £260 million (R5.2 billion) in imminent awards in the UK market.

Neff said there was strong growth in the group’s order book across all divisions and key regions in the year to end-June, adding that market conditions remain competitive but the short- and medium-term pipeline of opportunities is strong across multiple sectors.

Australian exit

Prior to its decision to exit Australia, WBHO worked on a deal in 2019/2020 to dispose of Probuild in Australia, in which it had an 88% shareholding.

Neff said Chinese-Australian geopolitical pressures got in the way of the deal, which was disallowed by the Australian authorities.

He said conditions in Australia subsequently worsened significantly to such an extent that on 23 February 2022 WBHO withdrew all further financial support for its Australian business, resulting in these businesses being placed in administration.

“We did this to protect the rest of the business. There is no doubt in my mind that we made the right call in this regard,” said Neff.

“From what I can see, we are now ready for growth and confident our shareholders will soon start seeing value again.”

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WBHO financial director Charles Henwood said the Australian business contributed about 60% of group revenue since 2018 and on average contributed 20% to the group’s operating profit prior to 2020.

But, he added, there was extreme underperformance by the Australian business for a number of years, with the operating losses and ultimate derecognition of the Australian operations eroding about R4.5 billion in equity over three years.

Henwood said the prevailing market conditions within the Australian construction industry vindicates WBHO’s decision to exit the country.

WBHO chair Louwtjie Nel said WBHO only needs the stamp of approval from the State of Victoria for two issues on the Western Roads Upgrade (WRU) project before the group can finalise its exit from Australia.

Results

WBHO on Tuesday reported a 11% decline in revenue from continuing operations to R17 billion in the year to end-June from R20 billion in the previous year.

Operating profit from continuing operations declined by 7.6% to R859 million from R930 million.

The group reported a net loss for the year of R2.27 billion compared to a R351 million profit in the previous year.

Headline earnings per share from continuing operations decreased by 19% to 1 297 cents from 1 322 cents.

A dividend was not declared.

Comment

Marc Ter Mors, global head equity research at SBG Securities, said there is a need to distinguish between WBHO’s exit from Australia and the core continuing business, where the order book grew substantially.

He highlighted that WBHO’s adjusted order book has almost doubled – to R32 billion by around mid-August if additional contracts awarded post year-end as well as some near orders and revenues that WBHO would have delivered in July 2022 are added.

“The conclusion therefore is that if you, as an investor, can accept some of the continuing risk in Australia, I think there is a very good opportunity and a good outlook,” said Ter Mors.

“We probably have more confidence as well in the stability and the delivery capabilities across the UK and African markets for WBHO, which would derisk the outlook as well.”

Ter Mors said SBG Securities placed WBHO on a speculative buy and not a buy largely because of the continued risk of increased costs in Australia.

But he said it does look as though WBHO’s exit from Australia has become more imminent although two outstanding decisions are awaited from the state government. These relate to the deeds WBHO has agreed on for cost overruns and the 12-year warranty period on the performance of the WRU contract.

He said those two deeds are for about A$30 million (R352 million), which if accepted will result in an outflow of the same amount from South Africa to Australia – but that a provision has already been made for this.

“There is still a slight risk if the [Victoria] government were not to accept those deeds and WBHO would have to renegotiate with the operators and the government on WRU to arrange an exit,” he said.

Shares in WBHO declined by 0.45% on Tuesday to close at R76.65.


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