Diversified industrial group Raubex has avoided the Down Under jinx that has ensnared some SA construction companies by not biting off more than it can chew.
Australia has proven to be tough territory for SA firms that have expanded there in search of fast growth. But Raubex CEO Felicia Msiza says its strategy to take on and execute seamlessly on small jobs with high margins work is the winning formula.
“In terms of our Western Australian operations, we grow organically, so we are not interested in very big projects that will run over two or three years,” Msiza said. “Our typical contracts are short term: three-month, four-month and six-month contracts and when we execute, we execute well.”
Raubex has opted to take a cautious approach by growing its footprint organically while being selective about the quality of margins in the work it takes on, she said. “We tend to respond on tenders which from a margin point of view will actually benefit us.”
The competitive and higher-growth Australian market attracted many local construction groups over the past two decades but it has not always been easy to navigate, posing a challenge for several SA companies. WBHO painfully exited the Australian market after 20 years in 2020, while Murray & Roberts also took a hit there and lost its Australian business recently.
But Raubex, whose share price has surged more than 40% in the past five years, is intent on breaking the trend. The diversified infrastructure, mining and construction materials group made its Down Under debut in 2018 when it acquired 70% of Westforce Construction in Perth, Western Australia.
Tough terrain
Less than a decade later, its Western Australia business contributed about a fifth to group revenue and operating profit in the six months to end-August. The R4.99bn JSE-listed firm has been enjoying an uptick of growth in the tough terrain that has attracted many SA construction companies in the past decade amid a dearth of work locally where GDP punched below its potential.
On top of doing work for a number of main passes and highways in Australia, the group’s projects comprise renewable energy and infrastructure jobs. This includes the upgrading of the Vasse diversion drain for flood protection of the Busselton area, upgrades to the Neerabup groundwater treatment plant to increase the capacity from 100-million litres per day to 150-million litres per day and construction of a deep-space antenna.
The company’s outlook in the region is positive, reporting that tender activity remains high driven by the mining sector and the infrastructure spending by the Western Australian government.
Having successfully completed its first wind farm project, subsequent awards for similar developments have been secured and construction has started.
“We’ve actually built very good relationships with our stakeholders in Western Australia,” Msiza said. “We’ve seen where we have executed, instead of them going back to issue another tender; they will go back and extend our scope of work.”
As wind and solar-produced energy gain momentum, Msiza said this represents an opportunity for the group to capture further growth at a measured pace.
Chronux Research analyst Rowan Goeller said the Australian order book remains robust and that business continues to perform well.
Though he cautioned that a slowdown in infrastructure spend is anticipated in Australia, Goeller said operating margins of high single digits (7%-8%) are expected. Additionally, the group’s diversification model positions it well against headwinds.
“The diversity that Raubex has built up over the years is paying dividends and should help protect against possible Sanral delays due to the cancellation of most recent tenders,” Goeller said.
After acquiring a controlling stake in 2022 in Bauba Resources — a diversified mining and exploration group — Raubex now reports on four operating divisions, up from three including construction materials, infrastructure, roads and earthworks, and materials handling and mining.
The biggest contributors to the R20.29bn order book in the 2024 financial year are roads and earthworks (R7.8bn), followed by infrastructure (R7.5bn). The materials handling and mining segment (R3.7bn) was third and the rest from construction materials.
Raubex shares rose more than 9% in the past seven days of trade, having climbed 43% in the past five years.
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