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RACEC share analysis |
2012-09-04 RACEC is a rail focused entity focussing on:
"Constructing, maintaining & upgrading railway track systems;
Providing mechanised on-track plant & machinery;
Constructing gantry, stacker reclaimer & ship loader track work;
Providing crane tracks for building & maintenance sectors;
Designing & constructing railway sidings;
Providing track-related civil & ancillary works;
Managing industrial rail networks;
Providing clients with turn-key project solutions; and
Constructing & maintaining electrical overhead track equipment."
There's been a tiny improvement in the diversification of business:
Geographic Diversification: There was a 52:48 split of revenue from South Africa:Rest of Africa in FY2012, compared to 62:38 in FY2011. However, the percentage of PBT from South Africa was 61% in FY2012 (60% in FY2011).
Construction:Annuity contract revenue was 86:14 in FY2012, compared to 90:10 in FY2011, representing a move in the right direction (RACEC has confidence that some of the projects will convert into long-term contracts).
Will "actively try to improve share market liquidity" in 2013.
Work in excess of R210m has already been secured & there are identified projects in excess of R8bn over the next 3 to 5 years (compares to revenue of R355m in FY2012).
At 31 March 2012 current assets were less than current liabilities. By 30 Sep 2012 current assets had increased from R107m to R132m, whilst current liabilities had decreased from R125m to R117m. Cash and cash equivalents remained at R18m, whilst the bank overdraft decreased from R31m to R24m. Although matters have improved, the company is not out of the woods yet, and is still vulnerable to trading partners not paying on time.
RACES moved its operational office to Brakpan in 2011; and maintains satellite offices in Cape Town, Maputo, Freetown (Sierra Leone) and Mombasa (Kenya).
All subsidiaries are incorporated in South Africa, except RACEC Africa Limitada (Mozambique) and RACEC East Africa Ltd (Kenya). The RACEC Employee Share Trust & RACEC Share Purchase Scheme are consolidated in the Group's financial statements.
2011. RACEC disposed of its loss making non-core subsidiaries, to focus only on railway construction & maintenance. RACEC Electrification, RACEC Power & Northern Electric were disposed of on 1 August 2011. Greenbro and Greenglo Geysers were disposed of on 30 September 2011.
18 Oct 2007. RACEC lists on the JSE with trade opening at 146c/share. The R28m proceeds of the listing were "earmarked to fund growth opportunities including the R8.4m purchase consideration for JMB Electrical Contractors, a complementary overhead reticulation contractor, acquired on 1 June 2007". JMB Electrical Contractors had been a competitor of RACEC for years, specialising in overhead reticulation with a dominant position in the Overberg & South Cape regions.
1977. Although originally purely a plate laying organisation, RACEC moves into electrical construction with the desire to give its rail sector clients a more complete solution.
1956 The "Railway & Civil Engineering Construction" company is launched, initially focused on the construction of railway sidings.
RACEC's have committed to continuing with their strategy to diversify their operations across the rail sector:
construction v annuity contracts
SA v Africa contracts (have set up a permanent regional presence in Mozambique & Sierra Leone). In FY2012 52% of revenue related to operation within South Africa.
Previously they had mention diversifying private v public clients (focusing on mining houses & other large infrastructure contractors), but this was left out of the FY2012 report.
Construction contracts can equate to good margins but can come with a high risk. RACEC plan to balance that by diversifying their rail construction offering to include maintenance annuity contracts in the mechanised rail business, as reported in the 31 March 2012 financials "Our strategy to secure annuity type contracts off the back of our initial construction works is also proving to be successful." Currently the split of construction v annuity contracts is 90/10, and RACEC plan to reach a 50/50 split over the next 3 to 5 years.
At 31 March 2012, RACEC generated some 66% of its business in South Africa. RACEC plan to move to a SA v regional split of 50/50.
In their 31 March 2012 results they reported that they had grown their continued operations 2012 order book to in excess of 160%. In the 31 March 2012 half-year they reported that they had been awarded the upgrading of 71km of track in Sierra Leone.
In August 2012 RACEC reported that they are in direct contact with potential "projects that hold a long-term value of around R10bn. 'If we secure only 5% of this new business, that is worth some R500m to us in the next 4 to 5 years.'"
In their FY2012 report , they mentioned being awarded a "R70m West African contract, scheduled to commence in February 2013", and are anticipating "further imminent awards in East Africa".
A major risk facing RACEC is that orders are cancelled and they fail to win tenders.
Gary Harrod (CEO since 1 June 2010), Sean Wilkins (CFO since April 2008, a CA),
Michael Uys* (Chairman since April 2008), Charles Harrod* (previously CEO), Colin Gooden* (a CA), Bonita Petersen* (a CA, Chief Internal Auditor at Metropolitan), Qedukwazi Zulu* (major shareholder of Solethu Investments)
* Non-executive
Company secretary: C van Rensburg
Mr Winston Ollewagen retired as an executive director of RACEC at the annual general meeting held on 3 March 2011.
S Smithyman resigned as an alternate director to Q Zulu on 28 February 2012.
550 permanent staff membes in South Africa & more than 1000 in the rest of Africa. Flexibility is maintained by using temporary contracts of employment to supplement core staff.
The executive team's task is to ensure that RACEC is at the forefront of securing new business contracts from planned developments.
In December 1988 a management buyout, supported by Standard Corporate & Merchant Bank, was effected & the head office moved to Cape Town.
During FY2009 RACEC sold 25% of its share capital to its BEE investor Solethu Civil Holdings for a total of R45m & a further 9% during 2010 by way of a rights issue, raising another R10m (At the time of listing more than 80% of RACEC staff members were black).
At 30 Sep 2012 the directors owned 47% of the company (Q Zulu 21.6%, CJ Harrod 9.8%, MJ Uys 7.9%, GL Harrod 5.6%, SC Wilkins 0.4% and CRS Gooden 0.1%).
It seems that most borrowings are at prime.
At 30 Sep 2011 there were reported tangible assets per share of 21c.
Declare a dividend up to a maximum of one third of annual profits after tax to shareholders, subject to working capital requirements & acquisition activities of the group.
No dividends were paid for FY2012, because of the cash required to fund future expected growth.
Rail transport is far more fuel efficient than road transport. As the price of fuel goes up, the competitive advantage of rail transport improves.
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