WBHO delivered a solid result in FY24 with strong growth from each division, while outperformance from the Roads and Earthworks segment drove the c. R4bn increase in top line. The group did benefit from a weak rand during the period, which increased revenue and profitability. On a GBP basis, however, the UK segment continued to struggle in tough market conditions, with elevated inflation and interest rates. Although interest rate cuts should help the UK market recover and enable many previously unviable projects, we remain cautious of the segment’s ability to make a meaningful recovery.
Although WBHO’s order book declined in FY24, it has signed term sheets for many projects and it awaits financial close. It is a preferred bidder on many more projects and there is a healthy pipeline of work. Our only concern is with the pipeline of Sanral work as the SOE is still battling procurement regulations, which has pushed out projects further and further.
The outlook for the group is positive, with growth expected within SA, and a recovery in the UK could improve profitability. We may have gone through bottom of the construction cycle as construction materials volumes have risen and traditional building activity is rising along the coast. However, management does not want to grow too quickly and risk the company’s strong balance sheet. We expect strong growth in the next two years as the group catches up on capex before stabilising from FY27.
The strong rerating from 6.4x to 10.0x is a direct result of the positive sentiment that accompanied the formation of the GNU and the beginning of the interest rate cutting cycle globally. While our outlook for WBHO is positive, we are cautious of the effects that the slowing US market could have on the global economy, as well as the pressure that weak commodity prices and the strong rand could put on the SA economy.