Many would agree that the good times are gone forlocal construction companies. But according to theexperts, patience can reward investors if they pick the right companies.
South Africa’s construction sector is in major distress after a decade of decline. The boom years leading up to 2010, which included projects like the stadiums for the soccer World Cup, Sanral’s road projects and Eskom’s mega coal-fired power plants Medupi and Kusile, are just a distant memory.
In addition, hundreds of billions of rands in promised government infrastructure spend has not materialised.
So far in 2018, Group Five’s share price has lost more than 93% of its value, while Aveng’s share price has lost just less than 98% of its value.
At the time of writing - at the end of September - Group Five shares were trading at 89c. A year ago, this was R14. Aveng was trading at just 4c per share, down from R3.11 a year ago.
Data analysis firm Timetric has forecast a compound annual growth rate (CAGR) of 1.57% for the construction sector between 2017 and 2021, with the key drivers of that moderate growth being investment in transport and logistics infrastructure, energy construction projects and the expansion of low-cost residential buildings.
The Bryte Construction Activity Monitor, released by the insurance company in July this year, reported a 45% increase year-on-year in insured construction activity in South Africa in 2017, rising to R61bn from R42bn. However, the report acknowledges that the situation remains dire, with South African construction players exploring opportunities to supplement growth outside the country’s borders. But such opportunities come with their own challenges.
“With four of the top six large construction companies losing 50% to 75% of their share price in 2017, and some losing in excess of 90% of their value as at June 2018, these alarming losses are likely to have brought about irreversible change, as it may be too late for some key players,” reads the report.
The good times are gone
Esta historia es de la edición 11 October 2018 de Finweek English.
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