For a company operating in an industry that spent much of the past decade shrinking, WBHO has an unusual problem: finding enough new work every month to replace the enormous amount it is already doing.
“We work off R2.5bn a month,” CFO Andrew Logan says, speaking after the construction group’s annual results release. “It’s a heap to replace on a monthly basis.”
That gives some perspective to results that initially look rather pedestrian. Revenue for the year to June slipped 0.6% to R28.3bn, operating profit fell 3% to R1.37bn and headline earnings from continuing operations were essentially flat. The order book was unchanged at R37.6bn.
For CEO Wolfgang Neff, however, “flat” is a relative concept. “We’ve had a good run since 2022, when Covid kind of came to an end and we got out of Australia,” he says. “In 2022 we were a R17bn business. So we’ve added R10bn of top line, mostly in South Africa.”
Logan points out that the latest numbers essentially match WBHO’s best result ever.
The question now is whether South Africa can provide the next leg of growth. The company’s R37.6bn order book suggests that something of an infrastructure revival is under way, though the economy and government execution remain formidable obstacles.
For now, shareholders who have been bitten repeatedly when investing in construction are sitting on the sidelines. Over five years WBHO’s share price is still up about 15%, but it has fallen about 18.5% year to date. Against the latest headline earnings of R22.83 per share and an unchanged 620c per share annual dividend, the stock now trades on about six times earnings and a 4.5% yield.
That might be regarded as cheap — especially as the country has spent years talking about an infrastructure-led recovery after a long collapse in fixed investment. The government is budgeting more than R1-trillion for infrastructure over the medium term and has been trying to bring more private capital into electricity, logistics, water and transport.
Yet the macro picture remains awkward. Fixed investment is far below the levels South Africa achieved during the investment boom before the 2010 World Cup, while economic growth is feeble.
Logan says rising commodity prices, the end of load-shedding, South Africa’s exit from the Financial Action Task Force greylist and a greater willingness by the government to involve private capital had all pointed in the right direction. “I think the government has good intentions to roll out infrastructure,” he says. “I think these macro things have just put a bit of a damper on these aspirations in terms of what it can afford.”
A rare survivor
WBHO is unusually well placed to judge whether those aspirations become concrete. The company is one of the few large local contractors to emerge intact from the long construction industry shakeout that smashed names such as Group Five, Murray & Roberts and Basil Read.
Work related to roads and renewable energy has driven much of the growth. That shift has created a formidable workload but also some concentration risk. WBHO is handling several multibillion-rand projects for the South African National Roads Agency (Sanral).
Logan describes the parastatal as a competent organisation with a substantial programme but says procurement remains unpredictable. “You might tender for new work, but it would be unclear whether it’ll take a year to adjudicate or two years, or whether the job might get cancelled. So planning becomes extremely difficult.”
Neff says Sanral had at one point put about R45bn of work into the market in a 12-month period, but the flow of major tenders since then has been far less consistent. “It’s just how the agency brings it to the market that is sometimes challenging, because there can be long periods when there’s nothing.”
That unevenness helps explain one of the curiosities of the local construction recovery. Several major competitors have disappeared, order books are full, yet margins have hardly exploded. WBHO’s latest operating margin was just under 5%. Competition for big road contracts remains intense.
The company also faces a patchwork economy. Commercial construction in Gauteng has shrunk sharply. Logan says a building division that was doing about R4.5bn of work in the province eight years ago is now at just about R2bn. WBHO has consequently moved resources to Cape Town, where construction activity is substantially stronger.
Mining is another frustration. Despite the strong earnings being reported by gold and platinum producers, relatively little of that money has yet found its way into large new mining infrastructure projects.
WBHO would prefer its roads and earthworks business to be less heavily weighted towards roads, Logan says, but “the work’s just not around”.
Neff’s assessment of the infrastructure programme is notably more cautious than the exuberant language occasionally coming from the government. “There was talk of turning South Africa into a construction site. The reality is that there is a gap between the talk … and the jobs, and between the goal and actually getting projects into the ground and ready to build.”
For now, WBHO can afford to wait. The more interesting question is what happens if South Africa finally does manage to turn the promised infrastructure programme into a sustained investment cycle. Neff says the pipeline WBHO can see is promising.
