Shares in construction group Murray & Roberts gained

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Shares in construction group Murray & Roberts gained 6.76% in afternoon trade on Wednesday after the group announced that it expected diluted headline earnings per share and earnings per share to show a loss for the financial year ending June 2011

At the JSE's close shares in the group surged 1.88 rand or 6.76% to 29.70 rand. 

The analyst said that although the business update "was not great," the market had been pricing in even worse than anticipated results by the group. He said that the general consensus was for an earnings drop of between 28-32%. 

"I think that the market has been pricing in figures worse than that, hence the short bounce, but time will tell." 

He said that despite the market pricing in bad news for the construction industry, "it's not enough to sustain a rally." 

Murray & Roberts said on Wednesday that its expected loss was considering the level of exceptional charges and loss on discontinued operations recorded in the half-year and to date. 

"Operating profit, diluted headline earnings per share and earnings per share all from continuing operations will be lower by more than 20% relative to the previous comparable period," it said. 

The group said its order book remained steady at about 52 billion rand, of which about 19 billion rand related to remaining works on the South African Power Program. 

In 2010 the group pointed out that an increase in working capital resulted in a higher interest charge and diluted headline earnings were 50% lower than the previous year at 340 cents per share. 

The analyst said that despite announcing some headway on government projects, Murray Roberts may have been forced into a number of decisions based on government's terms. 

Murray & Roberts noted that agreement had been reached with Hitachi on a sustainable way forward that includes final settlement on actual costs incurred by the group in fulfilment of the Medupi and Kusile subcontracts from inception to 30 June 2011. 

"Future commercial arrangements have been agreed and subject to performance, the remaining work on both subcontracts will deliver a margin within the group's published strategic range of 5.0% to 7.5%," it said. 

M&R added that agreement had also been reached with power utility Eskom, on a process that resolved the scope and cash flow challenges on the Medupi civil works contract. 

"The parties are working positively together to ensure delivery of this contract within an agreed timeframe and budget," it said. 

Murray & Roberts stressed that the Gautrain Project was nearing completion and Bombela Concession Company would lodge its arbitration Statement of Claim on or about 30 June 2011 in connection with the Land Deficiencies and related disputes that negatively impacted the contract. 

"These and other initiatives will result in a significant improvement in the group's cash position at 30 June 2011, and net debt will be several hundreds of millions of rand lower than the net debt of 1.1 billion rand at 31 December 2010," the group said. 

This, it noted, included a planned increase of working capital into the Gautrain Project and new working capital demands on a troubled marine project in Australia. 

The primary factors that had influenced the performance of the group and the potential financial outcome for the current financial year to June 2011 included ongoing recessionary conditions in the South African and Middle East construction economies, resulting in performance weakness in the group's construction, engineering and materials businesses. 

It also cited ongoing rand strength; a difficult marine construction market for Clough in Southeast Asia in the first half-year; losses recognised on the Gorgon Pioneer Materials Offloading Facility in Australia, which has experienced scope changes, delayed access and weather delays; high finance charges due to the funding of working capital; and significant improvement in the performance of the Cementation Group. 

In 2010, revenue declined slightly in the year to 32 billion rand with operating profit down 36% to 1.8 billion rand at an operating margin of 5.6%. 

A final ordinary cash dividend of 53 cents per share was declared. Murray & Roberts said it expected to publish its results on about 31 August 2011.

 


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