Commodity supercycle positions Murray & Roberts for a recovery

Murray & Roberts (M&R) says a recent report by Goldman Sachs proclaims that the recovery in commodity prices since the middle of last year will be the beginning of a much longer structural bull market for commodities. According to JPMorgan Chase & Co, oil and other commodities have probably entered a new supercycle, as a post-pandemic economic rebound and swelling inflation part expectations of rising demand.

That’s good news for the specialist engineering and construction group due to its growing exposure to natural resources. It’s also likely to herald a return to profitability in 2022 after the impact of Covid-19 obliterated profits last year and resulted in an interim loss this year.

M&R said it spent the last three years broadening its focus to mitigate market cyclicality, renaming its business platforms to better reflect the market sectors they operated as specialist contractors. It said the decision had paid off, particularly for its Energy, Resources & Infrastructure (ERI) platform, which falls under Australian subsidiary Clough.

In the space of two years, its ERI order book has ballooned from R4.4-billion in December 2018 to a record R42.2-billion in December 2020 after it expanded its focus from the liquified natural gas sector in Australia. This has resulted in a number of multibillion-rand projects in the ERI sectors.

While its Mining segment was hardest hit by Covid-19, its order book remained sold at R17.9-billion, with its Power, Industrial & Water platform remaining small in comparison at R400-million, taking its total order book to R60.5-billion at the end of December, up 19% from a year earlier.

M&R said the business impact of the pandemic and related restrictions that started in the second half of its last financial year continued into the new year, although not at the same level. Still, the impact was more severe than expected.

Revenue from continuing operations held steady at R10.8-billion for the six months to end-December but earnings before interest, tax, depreciation, and amortisation, a measure of operating profitability, fell 72% to R117-million. It attributed this to Covid-19 restrictions, especially in its Mining business, a disappointing result from the Power, Industrial & Water platform, and a smaller contribution from its investment in the Bombela Concession Company, operator of the Gautrain, due to capacity restrictions and a big decline in passenger numbers.

The group reported a loss of R167-million for the six months, down from a R163-million profit a year earlier, resulting in a diluted headline loss from continuing operations of 8c per share. Net cash improved to R300-million from R100-million of debt in December 2019.

M&R said its exposure to the natural resources, commodities, utilities and energy and infrastructure markets – and its significant order book – supported its view of expected growth in earnings, especially going into next year.

“Considering the group’s order book of R60.5-billion and near orders of R19.9-billion, it is well-positioned for a return to profitability in FY2022 and to achieve meaningful earnings growth in the short to medium term,” M&R said.

 “Although full-year 2021 is proving to be a challenging year for the Group, the current order book and near orders hold promising potential for a significant turnaround in 2022.” DM/BM