There’s life after the Cup

2010-07-10 11:18

The delay in government’s

planned infrastructure programme has left the construction industry with an epic


But according to

analysts, this is only a ­temporary lull and construction stocks are expected to

make a full recovery.

The FNB Civil Construction Index reported last week that business

confidence is at an all-time low as delays on Eskom’s power station programme

and other infrastructure projects ­affected the amount of work available in a

more competitive ­domestic industry.

FNB chief economist Cees Bruggemans said confidence in the building

sector is dropping and will continue to do so until government steps in and ­embarks on its planned

R845 billion infrastructure ­rollout.

The civil industry obtains 88% of its work from the ­government sector.

Chief executive of ­Esorfranki Bernie Krone said: “I used to say

‘there is life after the World Cup’, but I’ve got to the stage now where I say

‘well, let’s see it then’.

“The Cup has been a bigger stumbling block than people


Krone said the six-week ­holiday (during the World Cup) will have a

material ­effect on ­Esorfranki’s bottom line, as warnings made clear at the

group’s results presentations earlier this year.

A positive spin-off from the tournament was the fact that it gave

construction firms a deadline. With the event now behind us, there might be a

lack of ­impetus to commission and ­finish projects.

According to Warren Dick of Investorcentre, the construction

industry will enter a lull in the short term. He said: “The momentum will come

from the government and parastatals.”

This view is shared by Shaun le Roux of Alphen Asset ­Management.

Commenting in a note to clients this week, he said: “The differentiating factor

of the World Cup-related projects has been the degree of urgency.

“Whereas the average government and

parastatal project has and will continue to be subject to inevitable delays in

­specification, award and execution, the World Cup projects had strict

­Fifa-imposed deadlines, they had to be done on time.”

Le Roux went on to say South Africa needs to prepare itself for a

post-World Cup hangover and not to expect infrastructure spend to carry on as it

did before the event.

“Unfortunately, there is less money than previously in the kitty to

fund the very necessary projects in power, transport, housing, health and

education,” he said.

Potential drivers for the ­bigger construction firms like WBHO,

Murray&Roberts and Aveng is that they can take ­advantage of

less competition and higher margins in countries in ­Africa and the Middle East,

and look forward to oppor­tunities presented by the massive capital expenditure

programme linked to power utility Eskom.

Francois du Plessis of Vega Asset Management said: “In the bigger

scheme, the World Cup was not the be-all and end-all for construction firms.

Eskom will be a bigger job by far.”

Almost 35% of Murray & Roberts’ revenues were derived from

operations outside South Africa.

Aveng made 46% and WBHO and Group Five over a third of their

turnover from foreign ­operations.

Smaller companies are ­already moving into the domestic service

delivery sphere.

When asked about opportunities for construction players, Dick said:

“A recovery is on the cards if you take a three- to five-year view.”


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