JSE-listed engineering group Murray & Roberts (M&R) expects a significant improvement in total earnings per share (EPS) and headline earnings per share (HEPS) for the six months ended December 31.

Basic EPS for the period are expected to increase by between 57% and 75% year-on-year to between 44c and 49c, while basic HEPS are expected to increase by between 54% and 71% year-on-year to between 43c and 48c.

The group noted that the improvement is predominantly the result of a smaller loss in discontinued operations.

“ . .  the Oil & Gas and Power & Water platforms are experiencing challenging market conditions which is expected to have a considerable negative impact on [the] 2019 [full year] financial results for continuing operations, which . . . is expected to be partly offset by an increase in earnings from the Underground Mining platform,” the group stated.

BUSINESS UPDATE

M&R reported this week that the Underground Mining platform was operating in a “buoyant market” and was well positioned to achieve strong growth over the next few years.

Its financial performance is exceeding management’s expectations.

“Commodity prices in general have increased and there is a positive change in sentiment towards investment in the industry.”

The platform operates globally and is engaged in projects in Australia, Indonesia, Mongolia, the US, Canada, Mexico, South Africa and Zambia.

“Current projects include 18 vertical shaft sinking and equipping projects, 21 decline shaft and mine development projects, eight production mining projects and 13 support and construction services projects.”

The platform also has 37 raise drilling machines deployed in various locations around the globe.

The Oil & Gas and Power & Water platforms, however, continue to face challenging market conditions, with low levels of investment and new projects plagued by delays and deferrals, the group noted.

“Financial performance from these two platforms is not meeting management’s expectations and cost management continues to be a major area of focus.”

OIL & GAS

Large oil and gas projects will be completed in the second half of the year.

The current financial year has been characterised by the delay in the award of new projects. Tenders for several of these projects are expected to be adjudicated during the second half of the 2019 financial year and in the first half of the 2020 financial year.

This set of circumstances is expected to have a considerable negative impact on full-year revenue and earnings.

Opportunities in the Australian liquefied natural gas (LNG) market remain limited.

M&R is targeting potential LNG projects in Australia, Canada, Mozambique and Papua New Guinea, and is continuing to pursue opportunities in complementary growth markets, such as the metal and minerals and infrastructure markets in Australia.

“Recently, the Clough Salini joint venture was selected as preferred tenderer for the civil work packages on the multibillion Australian dollar Snowy2.0 project. Clough has a 35% shareholding in this JV. The formal award of this project is expected during the second half of the 2019 financial year.

POWER & WATER

The platform’s scope of work on the Medupi power station has been completed and its work on the Kusile power station will continue into the 2020 financial year.

“For several years, [the platform’s] earnings were underpinned by the contribution from these two projects. The lack of meaningful replacement work for Medupi and Kusile will be reflected in reduced platform earnings.”

The platform has one loss-making project which will be completed by the end of the current financial year.

The Baseload Coal Independent Power Producer Procurement Programme in South Africa continues to be delayed, M&R stated.

Consequently, the platform is targeting power plant repair and maintenance work in South Africa, as well as high voltage transmission projects in South Africa and sub-Saharan Africa.

Several tenders have been submitted, although adjudication will not be imminent.

Investment in the local water sector continues to be very limited, notwithstanding increasing pressure to upgrade dysfunctional municipal wastewater treatment plants.

“Two projects were recently secured in complementary markets, at a combined value of R600-million; work on a sulphur dioxide abatement facility for Anglo Platinum and the erection of a recovery boiler for Sappi. These were two of the larger project opportunities available, which is indicative of current market conditions.”

ATON OFFER

ATON’s mandatory offer to acquire all of the issued ordinary shares of M&R not already owned by it remains subject to certain conditions, specifically receipt of regulatory approvals in South Africa and a number of other jurisdictions, the group stated.

The long stop date for the Mandatory Offer is March 31 – a date which may be extended by ATON.

In the event of ATON announcing that the mandatory offer has become unconditional in all respects prior to the long stop date, M&R shareholders will still have ten business days from the date of such announcement to accept the offer, should they choose to do so.

In the event that the offer does not become unconditional prior to the long-stop date and ATON electing not to extend the long-stop date, the offer will terminate in accordance with its terms.

Shareholders are reminded that ATON’s cash offer price of R17 per M&R ordinary share remains below the independent board’s view of a fair value price range of between R20 and R22 a share.

M&R’s interim results will be released on or about March 6.