Vukosi Fungeni

Keep Construction companies on your radar…

In Financial Management on July 17, 2012 at 20:40

I think the SA construction industry is on the verge of a rebound!

My investment practices generally follow that of the legendary Warren Buffet, who often says (and I paraphrase):  “Go boldly in there, when everybody screams RUN!” Equally I say “Stock up whilst the listing is cheap”.

With most of the construction “listeds’” at significant lows (talking both returns and share prices) I am thinking the curve is about to take a different shape,

This is why ……

If you engage most equity analysts on construction companies you will find it very difficult to determine the direction of the industry. The market sentiment in the construction industry seems to differ with each candidate (company) you evaluate. Nobody can really tell you whether you should “BUY, SELL or HOLD” for the industry as a whole. This is often due to the authenticity (unique operations) of each of the listed entities.

After doing a very brief study I have found that, due to the dwindling demand for Construction Activity in South Africa most construction companies have had to seek out opportunities in other parts of Africa such as; Mozambique, Tanzania and the DRC which are very different to the way things get down back at home. Some have done well there but many frown at the thought of going back anywhere further than the Southern Hemisphere.

I believe that the South African government will be releasing a good chunk of the R 3.2 trillion allocated to infrastructure development over the next three years. Business confidence is reportedly quite low and economic activity in the overpriced “Retail industry” seems to have fallen on its face.

Despite all these factors, Jill Marcus and her cohorts do not seem to be interested in lowering interest rates which would encourage household expenditure and stimulate the economy (she has “inflation” to worry about).

If there was ever a right time for the Government to release the allocated infrastructure spend and engage the economy, it would be now!! For what it’s worth I think the guys are going to do the right thing on this one. I think they understand that they have to, even if it’s for Political reasons – which I have absolutely no expertise on.This would boost business confidence and stimulate economic activity.

It is worth mentioning, that South African construction companies tend to be heterogeneous, therefore one would have to study each company and evaluate it on its merits. I am only here to point you in the right direction, however,  keep an eye open for the Small Cap stuff. In South Africa Economic Policy favours B-BBEE, of which small enterprise development has become the Gospel.

Mr Vukosi W Fungeni

Managing Director (CEO)
GONDO Consulting Services
Email:   vukosi.f@gondoconsulting.co.za
Mobile:  +27 83 260 0797

http://www.gondoconsulting.co.za

  1. Interesting analysis I agree with you on this one, I just hope the government doesn’t mess this it up.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: