After 45 years of trading on the JSE, Group Five’s stock was suspended on Tuesday after the company filed for bankruptcy protection, making it the fifth local builder to enter business rescue in less than a year. From a peak market value of R8.2bn in 2007, it was worth less than R100m when the shares stopped trading.
“Those construction companies that are SA-orientated have gone from bad to worse in the past 12 months,” Marc Ter Mors, the head of equity research at Johannesburg-based SBG Securities, said. “In SA, volumes are low, pricing is under pressure and companies are taking on more risk to win contracts, so margins are thin and that hits cash flow. There are no real segments to hide in.
While M&R’s market valuation is a fraction of what it once was, the stock has gained 44% in the past year amid takeover interest from 40% shareholder Aton. In the meantime, the FTSE/JSE Africa Construction & Materials Index is down 27% in the past 12 months, compared to a 6% drop in the FTSE/JSE Africa All Shares Index. There is also risk that if SA’s local construction industry is wrecked, future building projects will become more expensive, Ter Mors said.
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