Construction Initiation: Construction migration – Greener grass Down Under

We initiate coverage of the construction & materials sector in South Africa. Our report focuses on three listed construction companies: WBHO (WBO), Murray & Roberts (MUR) and Aveng (AEG).

We find that the sector is recovering as the volume of construction work is improving, however, growth is being constrained by a number of factors.

Cable theft is plaguing Transnet Freight Rail, load-shedding is crippling the economy, inflation and interest rates are rising and, if South Africa is ‘grey listed’, it could face much lower investment inflows. Additionally, supply-chain delays, the ‘Construction Mafia’ and the tedious tender system continue to threaten progress in the sector.

Despite the constraints faced by the sector, we note opportunities for growth through the commodities boom, renewable energy, SANRAL and international growth. WBO is benefitting from large construction companies leaving the market and is well placed to benefit from SANRAL and REIPP tender awards. MUR is benefitting from the large government infrastructure investment in Australia. Expansion in North America means MUR is well positioned for a post-Covid recovery in the region and the commodities boom. MUR also stands to benefit from Eskom’s inefficiencies. AEG is in the process of right-sizing its business and eradicating legacy debt. Its exit from the SA construction industry means it does not face many of the sector issues and it is well placed for further growth in Australia.