JSE-listed construction group Raubex, which has a R6 billion South African National Roads Agency (Sanral) order book, expects to remain largely unaffected by the recent cancellation of a number of tenders by the roads agency.
Sanral withdrew its new preferential procurement policy (PPP) and scoring system late last month in the face of the legal challenge, resulting in it cancelling all existing advertised tenders that had not yet closed.
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It plans to expedite the re-advertisement of tenders and process them within its current financial year using an interim PPP.
Raubex CEO Felicia Msiza said on Monday a lot of tenders had been cancelled by Sanral since it announced the withdrawal of its new PPP.
Msiza said Raubex “will respond accordingly when the tenders are re-advertised”.
She said Raubex has about R6 billion of Sanral work in its order book spread over the next three years and is executing some of the mega Sanral projects on the KwaZulu-Natal corridor.
“We really hope that the readvertisement process will be fast-tracked, which will be good not only for us as Raubex but for the industry,” she said.
“We have put risk mitigation processes in place by complementing the roads and earthworks divisions with more private client work, including concessionaire work and provincial work as well.”
Raubex chief operating officer Dirk Lourens indicated that the group did not anticipate having any “standing time” at all because Sanral cancelled tenders.
“We have an order book of R6 billion worth of Sanral work, which will take us through this financial year, a big portion of the next financial year and there is even some roll over into the third financial year from now.
“The feedback from Sanral is that they are going to expedite the readvertisement and adjudication of these tenders. We believe that will happen and don’t believe it will have an effect on standing time from our side,” he said.
Order book still in good shape
Rowan Goeller, an analyst at Chronux Research, said road construction projects valued at R10 billion plus had been cancelled by Sanral, but Raubex’s order book is still in good shape.
Goeller added that not many 51% black-owned companies can bid for projects as big as some being put out by Sanral, but Raubex is also more diversified than in the past, and what happens at Sanral is much less of a concern than previously.
“With the prospects of renewable energy projects picking up and construction materials picking up in general with a bit of infrastructure expenditure in the country, they [Raubex] are actually looking to grow their earnings this financial year and even possibly into next year, notwithstanding what happens with Sanral,” he said.
Raubex reported an order book of R20.3 billion at end August 2023 compared to R20 billion at the end of its last financial year.
Msiza said Sanral projects account for 30% of the current order book, the same as at its year-end, with work from private clients increasing from 27% to 31% of the total order book.
“For the next six months, we will execute about R8.5 billion worth of work [in the current order book], R6.7 billion in our 2025 financial year, R2.5 billion in our 2026 financial year and R2.4 billion beyond that.
“This is a solid pipeline of work in line with our organic growth,” she said.
Border posts upgrade opportunity
Raubex is optimistic about securing some of the work for upgrading six South African border posts and is actively tendering for renewable energy work, particularly for private clients.
The group recently completed a R2.5 billion engineering, procurement and construction (EPC) contract to upgrade the Beitbridge Border Post in Zimbabwe.
Lourens said the six South African border post projects have been advertised, and submissions will close in early March 2024.
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“We believe that this time round these projects will go ahead. At this point in time, it’s early days and impossible to say what the value of these projects is going to be.
“But the makeup of the six projects is three bigger and three smaller projects and the indications are that one contractor will not get all of it.
“They will distribute it and spread the risk through [appointing] a few contractors to execute these projects,” he said.
Minister of Home Affairs Dr Aaron Motsoaledi said in June 2022 that his department plans “in a few months’ time” to issue a public request for proposals for a R6 billion project to completely overhaul and rebuild South Africa’s six busiest border posts.
Reippp projects struggling to reach financial close
Lourens added that there is unfortunately “a bit of a lag” on rounds five, six and possibly round seven of the Renewable Independent Power Producer Programme (Reippp) because of inflationary increases experienced over the past two years and during the Covid-19 pandemic.
“Some of the projects are still struggling to reach financial close. However, we do see that commodity prices, in terms of panels and steel, [are] coming down, so that should have an effect and assist the IPPs [independent power producers] to reach financial close,” he said.
However, Lourens said Raubex is “very actively busy tendering on the private side”.
“There is huge activity in the private side where it is directly for a private client and there is not a wheeling agreement involved.
“Where there are wheeling agreements and the dependability on the distribution from Eskom, there’s still a bit of a lag because of the red tape to get the projects to financial close.
“However, the overall outlook for renewables in South Africa is still looking very good.
“We [also] have got a good increase in activity in Western Australia, and we are going to capitalise on the knowledge we have built on the South African side to utilise that in Western Australia,” he said.
Raubex on Monday reported a 14.5% increase in revenue to R8.45 billion from R7.38 billion in the previous corresponding period.
Operating profit increased 14.2% to R628.4 million from R550.3 million.
Headline earnings per share increased 19.4% to 189.8 cents per share from 159.0 cents.
An increased interim dividend per share of 63 cents was declared compared to 53 cents in the prior period.
Goeller said the fact that Raubex has increased its earnings despite the very profitable Beitbridge project now being in its base “is quite impressive because they would have had to replace that revenue, which is at very high margins, with a lot more revenue at normal margins to get any growth”.
Shares in Raubex rose 0.08% on Monday to close at R25.02 per share.