Shares of WBHO logged their worst stock market performance in more than two decades on Wednesday, wiping out more than R1.6bn in shareholder value.
The construction group said the Australian division is headed for business rescue because of a withdrawal of group financial support.
WBHO has provided about R2bn to the struggling division over the past four years, but a proposed $200m (R3bn) sale of its 88% stake in Australian unit Probuild fell through in 2021, reportedly blocked on national security grounds because the buyer would have been a Chinese company.
The news on Wednesday sparked a selling frenzy, sending shares down more than 27% to end at R82. It is the biggest percentage drop since at least 1999, bringing the loss over the past five years to about 40%.
WBHO had shifted the strategy for the division, saying the Australian construction environment has become increasingly competitive and contractual, and the potential risk on megaprojects outweighs the margins on offer.
Australia, where WBHO has been operating since 2000, accounts for about half of the company’s annual revenue, helping it to ride out an industrywide slump in SA that caused the demise of several household names such as Group Five and Basil Read.
Recently, however, this division has been a drag on earnings, contributing a near R400m operating loss in 2021 and a R1.2bn loss in 2020.
The group struggled with losses as a result of mistakes at some major projects, notably a huge roads project in Melbourne, where it misinterpreted the technical specifications.
A more conservative strategy of focusing on lower-risk and less complicated projects has not paid off, however, with WBHO saying that sourcing acceptable projects has become more difficult, partly due to Covid-19.
The group said it decided to no longer provide financial support to the division from Tuesday. An application has been made for administration, or a form of bankruptcy protection that is known as business rescue in SA.
WBHO’s Australian woes come at a time when the SA construction sector — which was floored by a dearth of new projects after the 2010 Soccer World Cup building boom — is seeing signs of recovery while President Cyril Ramaphosa touts private sector-led infrastructure spending as the linchpin of his economic reconstruction and recovery plan.
WBHO also warned in a trading update it expects to report a headline loss per share of at least R16.11 for its six months to end-December, from earnings of 82c previously. This means a headline loss of about R1bn for the group, which is valued at R5.2bn on the JSE.
The material deterioration in earnings comprises a loss per share of R16.64 in respect of trading losses in Australia, a loss per share of R8.46 in respect of the impairment of goodwill related to the Australian operations and a loss per share of R6.16 in respect of the reversal of deferred tax assets in Australia that are no longer considered recoverable.
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