Raubex reports strong recovery, but construction sector is still struggling
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CAPE TOWN - THE SHARE price of road, earthworks, infrastructure and materials group Raubex rose sharply last week after it reported a strong recovery in the second half of the year to February, a record order book, and more contracts on the way.
Construction companies have been out of favour among investors for years, because of low infrastructure spending by the government and constrained private sector investment.
Many of the listed firms in the sector have encountered financial difficulties. Good news from any company in the sector is novel.
Raubex's share price was up 0.18 percent to R28.35 on Friday, but it had increased 11 percent from a week before.
If I were a cautious investor, and despite the good news, I would wait six months for Raubex to recover properly from the three months of not trading last year during the lockdowns.
Margins in the road and earthworks operations are paper thin, profits are falling in the rest of Africa, and it would be good to see more physical evidence of the government's infrastructure development programme.
Aveng is another construction group looked on favourably by investors, with the price on Friday up 33.3 percent to 4 cents. The share has been trading between 2c and 4c this year.
Aveng, which has construction and infrastructure operations in Australasia and an open-cut contract mining business in South Africa, has been on the mend following a restructuring and a R392 million rights issue earlier this year.
The earlier rights issue elicited much interest among investors, so a follow-on to raise another R100m was announced, to be pitched at 1.5c per share, the details of which were released last week. This rights issue will open on May 24.
Aveng moved into the black in the six months to December 31. Its diversified businesses should shield it from any potential impact of a third wave of Covid-19 in South Africa.
An interesting development last week was the uncharacteristic sharp rise in the price of Lewis Group shares after the furniture retailer said earnings would increase by as much as 136 percent in the year to the end of March, when the results are released on May 27.
Positive cash sales momentum through 805 stores in the nine months to December last year had continued for the following three months.
The share was up 0.15 percent to R33.80 on Friday morning, bringing to more than 13 percent the rise over a week.
Lewis Group's results, with its sales of higher-priced consumer goods, indicated that the financial health of consumers was improving, and an economic recovery was under way.
This was supported last week by the BankservAfrica Economic Transactions Index, which rose 2.3 percent month on month in April to a new all-time high. It also indicated that the economic recovery had extended into the second quarter. But it was off the low base of the first half of last year. And there are headwinds, such as higher energy prices, rising inflation last month and this month and threats of a third Covid-19 wave. But these too will pass over the investment horizon, possibly within a few months, and a leaner Lewis will probably still be selling furniture.
Also likely to do better once the Covid-19 threat is gone is Long4Life, which last Thursday opted not to pay a dividend for the year to the end of February, and was even considering delisting after the lockdown hurt its sport and recreation, beverages, and personal care and wellness investments. Earnings per share fell 26 percent to 31.9c and revenue was down 12 percent to R3.58bn.
Chief executive Brian Joffe, an old hand at new businesses, should know better than to be so pessimistic as to consider delisting after only four years, as it is possible that Long4Life's business model has yet to come into its own. Many have said that tourism will recover with a bang once the pandemic dies down, and consumer trends are aligned with the group's product and service offering.
To my mind, future acquisitions should be an outdoor activity, because it has also been flagged for great postCovid-19 growth.
Long4Life was up 1.74 percent to R4.69 on Friday afternoon, gaining 10.6 percent from the previous Friday.
AngloGold Ashanti's share price was up 2.6 percent to R329.36 on Friday afternoon, and 3.6percent up on the Friday before. The uptick was suggestive of a turnaround from the steady decline in the price since April last year.
It reported first-quarter headline earnings of $203m (R2 866) last week, compared with $143m in the first quarter of last year, with the increase driven in the main by a rising gold price. The balance sheet remains healthy.
Gold prices have been bearish for some nine months. Gold bugs were punting the metal in the media last week, and if you believe them, and can afford it, an investment in a solidly performing global gold miner that operates four continents may be the way to go.