Construction and Materials Initiation – If you build it, will they come?

We initiate coverage of the construction and materials sector in South Africa. Our report focuses on three listed construction and materials companies: Afrimat (AFT), PPC (PPC) and Raubex (RBX).

We find that the sector is shrinking due to the lack construction projects, the slow tender process and delistings. With business confidence remaining low, we do not expect much private investment as investors wait for the economy to recover.

The companies covered in this report face further pressure from cement importers and blenders, finding it difficult to compete with these low-cost products. These issues have been compounded by high transport costs, rising input costs, the unreliable road and rail systems, as well as the supply chain issues.

Despite the challenges the sector faces, we note opportunities for recovery and growth through renewables and the government infrastructure projects.
AFT has benefitted from the commodities supercycle but is more than just an iron ore company. Thanks to its strategy, it has growth opportunities in renewables. PPC is in the process of right-sizing its business and reducing its debt, as well as exploring technology to reduce costs and carbon emissions. RBX is poised for growth once roads, renewables and other infrastructure projects are awarded. Through its planned expansion, RBX could gain more infrastructure project awards.