Raubex disappointed to lose Sanral contract to Chinese JV

JSE-listed construction group Raubex is disappointed it lost the tender award for the R1.8 billion upgrade to the Ashburton interchange in KwaZulu-Natal to a Chinese joint venture company.

However, Raubex CEO Felicia Msiza said on Monday she doubts the activity of Chinese companies in the local market will negatively impact Raubex’s order book and financial performance in the future.

She said that of the four tenders awarded by the South African National Roads Agency (Sanral) last week, Raubex only submitted a bid for the Ashburton interchange project.

“We are obviously disappointed not to have won the bid, but we do believe the DBSA [Development Bank of Southern Africa] has followed the supply chain management processes in terms of the award and it looks like it was awarded based on the lowest price,” added Msiza.

She said it is positive to see that Sanral is now awarding tenders and Raubex is looking forward to more awards from Sanral.

Outlook

As to whether these Chinese contractors will affect Raubex’s order book going forward, she says: “…we have always delivered quality, on budget and on time in terms of our work with Sanral and believe our experience, current balance sheet and the capacity we have places us in a better position [than other contractors] in terms of other contracts to be awarded by Sanral.”

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Raubex said in May this year the group was in the running for Sanral projects valued at between R8 billion and R10 billion.

Msiza said on Monday that Sanral accounted for 32% or R5.29 billion of Raubex’s total R16.4 billion order book at end-August compared with 39% or R6.68 billion at end-December 2021.

She said a number of project awards are still expected from Sanral.

Chinese companies were last week awarded the bulk of the Sanral tenders for four significant projects. The Ashburton interchange project was awarded to the Base Major/China State Construction Engineering Corporation (CSCEC). Base Major, founded by Chinese businessman Stephen J Lu, was registered in South Africa in 2007.

Msiza said Raubex is still pleased with the group’s current solid order book of R16.4 billion, but stressed the need to continually replenish it because the group is “in fact working off R50 million a day”.

“There have been high levels of tender activity, which have continued during the year to date. There are a number of projects that are still pending adjudication, which can increase the order book substantially if awarded [to Raubex].”

Raubex’s international division increased its portion of the group’s total order book to 34% at end-August, from 24% at end-December.

Two new major contracts

This increase is due to the award of two major contracts in Africa – the R1.2 billion Namdeb project in Namibia and the R2.4 billion Sequi River Bridge project in Lesotho, in which Raubex is a 21% joint venture partner.

“If you look at the growth of our order book over the past five years, you will see that the group has actually doubled in size,” said Msiza.

“Our teams are energised to deliver on our R16.4 billion order book and to also leverage our healthy balance sheet and take advantage of diverse opportunities for growth available to us.”

Beitbridge Border Post

Raubex’s flagship project, and the single biggest contract it has been awarded to date, is the R2.5 billion engineering, procurement and construction (EPC) contract for the upgrading of the Beitbridge Border Post in Zimbabwe.

Once it is completed, Raubex has a 17-year maintenance contract valued at R1.7 billion.

Raubex chief operating officer Dirk Lourens said on Monday the border post section of the Beitbridge project must be completed by end-November and the project in totality during April 2023.

Lourens said Raubex has not seen the government infrastructure build programme “coming on line yet”.

“We believe there is a lot of it in the pipeline and we will definitely look at it strategically with regards to margins and risk. We are ready to execute once this infrastructure drive has been fully rolled out by government,” he said.

Raubex is targeting further border post projects in South Africa and its neighbouring countries, plus renewable energy projects.

Minister of Home Affairs Dr Aaron Motsoaledi said in June 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.

Lourens said the feedback Raubex is getting from South Africa and its neighbouring countries on border post projects is that these public private partnerships (PPPs) will be advertised imminently.

Renewable energy

Commercial close on Bid Window 5 of the Renewable Energy Independent Power Producer Procurement (Reippp) programme – comprising 25 projects totalling 1 600MW – has been further delayed, with the preferred bidders only announced about a week ago.

Msiza said the group’s infrastructure division is well positioned to take advantage of the private sector and government’s drive to increase power generation capacity.

Lourens said Raubex has experienced increased activity and demand in the private renewable energy sector and has shifted its focus to this market because of the delay in the award of Bid Window 5 projects.

Interim results

Msiza said Raubex achieved its best first half-year results in the history of the group in the six months to end-August 2022.

Raubex on Monday reported a 23.2% increase in revenue to R7.38 billion from R5.99 billion in the prior corresponding period.

Operating profit improved by 26.4% to R550.3 million from R435.2 million.

Headline earnings per share grew by 16.1% to 159 cents from 137 cents.

An interim dividend per share of 53 cents was declared, which is 12.8% higher than the 47 cents declared in the prior period.

Analyst comment

Peregrine Capital executive chair David Fraser said Raubex has produced a solid result, which shows the benefits of a diversified earnings base.

However, he said going forward Raubex will have to find replacement work for the Beitbridge border post contract, noting that this contract is more material to Raubex by margin contribution than revenue.

“If you look at the international margin it’s at 25%. The vast majority of that is the Beitbridge border post contract. They will have to replace that operating profit rather than the turnover and it may need twice or even three times as much turnover to generate that operating profit. That will be the challenge going forward.”

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here. 

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