The exchange … with Raubex CEO Felicia Msiza

Raubex is that rare commodity in the construction sector: a company that has made few missteps in the past lost decade. And if Sanral gets its act together, Raubex could be looking at another R12bn-R15bn in project work on top of a R24bn order book.
4 mins read

Once wholly associated with roadworks, Raubex is now active in housing construction, solar and wind farms, materials handling, contract mining and chrome ore extraction through its acquisition of Bauba Resources two years ago. On Monday, it delivered a jump in interim revenues (up 29.7%, to R10.95bn), a 34.7% rise in operating profit (to R846m), higher operating margins at 7.7%, and a fatter dividend of 94c a share. 

Intriguingly, its shares fell 2% on Monday, though on a five-year basis they’re up 131%. Compare that to the 87% collapse in Murray & Roberts stock over the same period, or the 47% rise in Wilson Bayly Holmes – once considered the gold standard of construction stocks. Currency spoke to CEO Felicia Msiza about the latest results.

Raubex CEO Felicia Msiza. Image supplied

In terms of post-elections infrastructure spend, optimism about the government of national unity is there, but is the work actually coming in? 

There is work. If you look at the roads and earthworks division, we have received some significant awards, the first being [from] the Western Cape provincial government – we have received R1bn of work from them; we’ve also received about R1.4bn of work from Bakwena (the N4 project we’re working on) and then about R2.5bn from Sanral [the South African Roads Agency Ltd) since the beginning of the year. And in infrastructure we’ve received about R2.5bn in the private renewables space, including R500m of work for the Keystone manufacturing project. But there have been delays in terms of work that we tendered, specifically Sanral.  

You said a “significant” number of contract awards are still pending – what’s happened there? 

They were working on their procurement policy – remember [Sanral] had issues with their procurement policy and because of the court challenges – then they revitalised their policy where they put up an interim preferential procurement policy, so they have finalised that now [in August]. So it’s back to what we know in terms of how they actually award the tenders: 90/10 (90 in terms of price, 10 in terms of BEE). They also went through some internal restructuring; they appointed a chief procurement officer from what we hear, so we’re hoping they are done now with all their internal issues, so maybe in the next couple of months we should see awards coming through. 

You aren’t wholly reliant on Sanral any more though, and in terms of your order book 36% of work is for the private sector, 20.9% is for Sanral, about 10% is provincial and just 2.6% is municipal. Do you expect that to change? 

We’ve been deliberate in terms of diversifying our order book – it’s been intentional to reduce reliance on Sanral, hence you see an increase in private clients and also an increase in terms of concessionaires. Are we expecting to see a change? Definitely yes, because of the amount of work we’re expecting from them – anything between R12bn and R15bn – that could be awarded.  

Is that in addition to the present R24bn order book? 

Yes. We’re also expecting more work from concessionaires: N3TC, Bakwena and TRAC [Trans African Concessions]. 

Do you have the cash if those projects come to fruition? 

Definitely. Specifically on the Sanral projects – we’re finishing up on some work next year so there will be spare capacity to take on new work and from a financial perspective there’s a 10% retention policy. Also, the roads side of the business is not that capital intensive.   

In your view what are the biggest risks for your sector and Raubex, particularly for the next while? 

Capacity, should all of this work come through now, then making sure that we’ve got capacity to execute. But it’s a nice problem to have and we have been there before, so we should manage. Another risk from a mining point of view is the rand strengthening, but these are risks outside our control. The other things, construction mafias and criminal elements, are things we are used to. 

You seemed to have quite a good relationship with communities. How do you balance accommodating community forums without encouraging extortionate activity? Must you not take a harder line? 

We cannot engage with criminals – at all. That is the stance we have taken. But being in the business we are in, there’s a lot of stakeholder engagement required and if you look at the whole construction mafia it’s threefold: issues around communities, the criminal element and these forums. We’ve been proactive over the years to say that we engage before we start a project, and that approach has worked for us. You look at an area like KwaZulu-Natal, where most businesses cannot operate, we are able to because of the strategy we deploy. If someone comes and demands a percentage of a project, we will not entertain such cases. The government committee that’s been put in place is also working. 

We’ve seen Murray & Roberts run into issues at De Beers’ Venetia mine. I wonder: how worried are you about the rising threat of lab-grown diamonds to De Beers, given that you have a major five-year contract with Namdeb (for work on Southern Coastal Mines in Namibia).  

The call for production remains the same; there’s not a reduction in our production quantities that they’ve mentioned to us yet. However, looking forward, yes, we would be irresponsible to not make provision from the next financial year for the possibility that they might, for a period of time, reduce production. But due to the big reliance from government on the diamonds for income, and the fact that the diamonds we are mining there are much more for commercial purposes than for jewellery, there might be a down cycle, but we don’t believe the effect would be that big on us. I think we’ll have a better idea at full year. 

You sold a few shares recently at between R43 and R46 – I wonder what you think about Raubex’s prospects and whether the stock might plateau a bit for now? 

Basically, that was part of the LIT [long-term incentive] and just to get a little cash, but if you look at the shareholding, I still hold a substantial amount of shares and I believe the share price is going to grow. This year, the share price traded above R50, even R59. I still think it will outperform where it is currently.  

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Giulietta Talevi

A prominent voice in print and broadcast financial journalism with a sharp edge in market and company news. Former Financial Mail Money editor and BusinessDayTV anchor, Giulietta boasts an influential digital footprint that commands industry respect.

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