Diversified International Projects Will Leverage Cross-Border Opportunities In Africa And Australia

Key Takeaways

• Increased government spending and renewable energy projects in South Africa could enhance contract revenues and operating profits for Raubex.
  
• International projects in Australia and Africa, along with restructuring, support steady revenue growth and improved operating efficiencies.
  
• Decreased margins, lower order books, and higher tax rates could limit Raubex Group's revenue consistency, financial stability, and growth potential.

Catalysts

Engages in the infrastructure development and construction materials business in South Africa, Australia, rest of Africa, and internationally.

• Raubex is expecting increased infrastructure spending from the government of South Africa, particularly in water, wastewater treatment plants, and border posts, which could enhance revenue through new contracts and projects.
  
• The establishment of new chrome ore wash plants and the potential commissioning of the PGM plant at Kookfontein in 2026 could boost production efficiency and contribute positively to earnings growth.
  
• The Roads and Earthworks as well as the Infrastructure divisions are expected to benefit from SANRAL's commitment to infrastructure upgrades and private renewable energy projects, potentially increasing revenue and operating profits.
  
• The diversified and strong international order book, with projects in Australia and Africa, positions Raubex for steady revenue and operating profit growth, leveraging cross-border opportunities.
  
• Restructuring efforts, particularly in the asphalt business, and successful project executions are expected to continue improving operating efficiencies and margins, supporting overall profitability.

Raubex Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Raubex Group's revenue will grow by 12.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.1% today to 3.9% in 3 years time.
• Analysts expect earnings to reach ZAR 1.1 billion (and earnings per share of ZAR 8.02) by about February 2028, up from ZAR 1.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.8x on those 2028 earnings, up from 8.4x today. This future PE is greater than the current PE for the ZA Construction industry at 8.6x.
• Analysts expect the number of shares outstanding to decline by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.81%, as per the Simply Wall St company report.

Raubex Group Future Earnings Per Share Growth

Risks

• The operating profit margin in the Materials Handling and Mining Division decreased from 10.9% to 8.4% due to inefficiencies during the Kookfontein ramp-up phase and the change in the underground mine contractor, which could affect overall net margins.
  
• The order book decreased slightly from ZAR 25.5 billion to ZAR 24.5 billion, suggesting potential challenges in retaining the growth pace, which may impact revenue consistency and long-term financial stability.
  
• The Rest of Africa's order book is slightly down from ZAR 3.5 billion to ZAR 3 billion, indicating potential revenue limitations in the international segment, which could impact overall earnings.
  
• The effective tax rate increased to 28.1% from 26.7%, attributed to profit contributions from higher-tax jurisdictions like Australia and Namibia, potentially affecting net earnings.
  
• CapEx plans indicate a decrease from ZAR 1.7 billion last year to a targeted sub-ZAR 1 billion, driven by higher equipment costs, which could constrain future growth potential and profitability.

Valuation

• The analysts have a consensus price target of ZAR58.5 for Raubex Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR28.6 billion, earnings will come to ZAR1.1 billion, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 18.8%.
  
• Given the current share price of ZAR47.23, the analyst price target of ZAR58.5 is 19.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.