Bridge of tears
Murray & Roberts (M&R) just can’t catch a break. Its share price is down 50% already this year and now it may face a slew of lawsuits if investigations show it was to blame for the bridge collapse on Johannesburg’s M1 highway last week.
The M1, which connects Johannesburg to Pretoria and also to the N3 and N1 arterials, is SA’s busiest stretch of motorway by volume of vehicles.
It may be too early to apportion blame for the accident, but an existing reason for the halving of M&R’s share price from R20,94 in January to around R10,69 now is the continuation of disappointing earnings.
M&R is not alone in the doldrums. Prospects for the sector continue to be dire, with little sign government will accelerate its infrastructure spend any time soon.
Major listed construction stocks have tanked on the JSE this year as a consequence of subdued order books in an economy that is probably in recession (GDP fell 1,3% annualised in the quarter to June). When Statistics SA releases the past quarter’s GDP numbers in a few weeks’ time, they are likely to confirm a recession.
Aveng is down 77%, and Group Five has lost 35% since January.
Four months ago M&R, SA’s second-largest construction company, provided a temporary boost to the sector when it revealed it had won the R4,8bn Kalagadi Manganese contract. Its share price shot up 11% on June 10 when the news broke. Investors cheered the rare bit of good news from a sector reeling from reputational damage for its involvement in illegal collusive price manipulation in tendering for work in the lead-up to the 2010 soccer World Cup.
Back to last week’s accident, in which two people died and several others were injured.
In the event of the company being found guilty of shoddy workmanship or negligence in the accident, M&R CEO Henry Laas may have to pay more than just the funeral costs of the two victims, which he offered to do last week.
Insurance claims from the injured, those who had their cars smashed by the bridge collapse and possibly the City of Johannesburg, which commissioned M&R to build the pedestrian bridge, may also arise.
Brent Madel, an analyst at BPI Capital, says: “It is premature to think about the insurance ramifications until we know who was at fault.”
It is not uncommon for fatalities to take place on construction sites. “The problem for M&R is that it happened on such a grand scale on a mainstream highway,” he says.
The accident was also reported by international television stations, including the BBC.
Roelof Brand, an analyst at Avior Capital Markets, agrees That it is too early to think about the financial implications for M&R. “Of course it would cause reputational damage if they were found to blame but no-one knows what happened,” says Brand.
Whatever the outcome, the accident is unlikely to help M&R’s earnings growth prospects in the coming year. Its ability to secure future government jobs may also have been
150 jeopardised. Already, profits for the 2015 financial year ended June fell 36% to R859m, well below analysts’ expectations. Against the previous year, the group’s order book fell R2,6bn to R38,3bn.
There are, however, other parties that may yet be implicated in the investigation. Cement producer Afrisam quickly responded to speculation that its cement truck brought the bridge down. CEO Stephan Olivier says tracking data shows that Afrisam’s cement truck, which was discharging concrete at the construction site, was stationary for about 30 minutes prior to the collapse.
Equipment rental group Waco International supplied the scaffolding, froth and foam used to construct the temporary bridge. In the wake of the accident, major Waco investors