Wilson Bayly Holmes-Ovcon Limited

Basis: All figures are for continuing operations (excluding Australia) unless stated. FY2022–FY2023 come from the FY2023 audited AFS [S4], FY2024–FY2025 from the FY2025 summary statements [S3], and FY2026 from the FY2026 summary statements [S1]. WBHO does not report cost of sales. "Gross contribution" is therefore derived as revenue less reported "operating costs". EBITDA is derived as operating profit plus depreciation (including right-of-use assets).

Income statement

Notes: FY2022 discontinued loss includes the loss of control of the Australian subsidiaries [S4]. FY2024 operating profit is after an R86.0m goodwill impairment; the CGU was not identified in the summary statements reviewed [S3]. FY2022–FY2023 headline earnings come from directors' report commentary (R690m and R904m) [S4].

Per-share data (cents)

Notes:

• FY2022–FY2023 HEPS continuing come from Profile's Handbook [S7][S8], which is consistent with headline earnings ÷ weighted shares.

• FY2023 total HEPS (1,514c) is derived as continuing HEPS less the discontinued loss of 188.9c per share [S4].

• FY2022–FY2023 diluted HEPS is shown equal to basic. The FY2023 AFS reports EPS as "basic and diluted" [S4]; FY2022 diluted HEPS was not separately extracted.

• Dividends: FY2024 = 230c interim + 230c final; FY2025 = 300c + 320c; FY2026 = 300c + 320c [S7][S10][S2]. No dividends were declared for FY2022 or FY2023 because of Australian cash outflows [S4][S33].

Margins (derived)

Revenue CAGR (continuing): FY2022–FY2026 four-year CAGR of 13.2% (derived). FY2023–FY2026 three-year CAGR of 6.0% (derived).

Balance sheet

Notes:

• The current portions of instalment-sale and lease liabilities sit within trade and other payables. These were disclosed for FY2022–FY2023 (FY2023 current portion of long-term liabilities R345.2m and of leases R36.5m [S4]) but not in the FY2024–FY2026 summary statements. "Net cash" here is therefore an upper-bound measure (derived).

• FY2023 interest-bearing debt in full: instalment sales R277.4m, bank loans R271.4m, leases R168.1m, total R716.9m [S4].

• NAV per share uses shareholders' equity divided by the weighted average share count (derived). Profile's Handbook uses gross issued shares and reports 7,503c for FY2025 [S7].

Cash flow

Notes:

• WBHO classifies dividends paid within operating activities.

• FCF (derived) = net operating cash flow + dividends paid + discontinued operating outflows (R1,593.7m in FY2022) – cash capex.

• Total capex: FY2022–FY2023 use PP&E additions [S4]; FY2024 R533m and FY2025 R517m per the Integrated Report [S5]; FY2026 = R268.6m cash plus R395m financed [S1].

Ratios (derived, year-end balances)

Notes:

• ROIC (derived) uses operating profit × (1 – effective tax rate) divided by (total equity + non-current borrowings and leases – cash). It is inflated because cash is largely funded by customer advances and excess billings: contract liabilities were R3.0bn in FY2026.

• Company-reported comparables: return on capital employed was 36% in FY2025 and 33% in FY2024; debt to equity including leases was 10.5% in FY2025 and 14.8% in FY2024 [S5].

• Cash conversion cycle is not publicly disclosed and is not meaningful for contractors working on milestone and surveyed billing.

• Dividend cover for FY2022–FY2023 is shown as 0 because no dividend was paid.

Trend commentary

Revenue. Revenue of R17.2bn in FY2022 marked the trough after the Australian exit. FY2023 grew 38%, driven by South Africa (+42%), the rest of Africa (+56%, from Mozambique and two Liberian projects) and the UK (+19%) [S4][S32]. FY2024 added another 16%, building on large building, data centre, renewables and SANRAL programmes [S5][S13]. FY2025 grew 4% and FY2026 was flat (–0.6%), described by the Chairman as "consolidation" [S5]. The FY2026 plateau came from three factors: Gauteng building fell sharply (division revenue –16%), West Africa wound down after Ghana and Liberia projects completed (R&E rest-of-Africa revenue –25%), and roadwork ramped up only gradually [S1]. H2 FY2026 revenue of R14.3bn was slightly above H1's R14.0bn (derived from [S9]).

Margins. Group operating margin has held in a narrow 4.5–5.0% band for four years. The mix has shifted: renewables and civil engineering lifted B&CE to 5.2%, while R&E fell from 7.6% to 7.2% on a heavier weighting of lower-margin roadwork and the N2 Makhanda loss [S1]. The rest of Africa is structurally the highest-margin region (11.9% in FY2026), so its smaller revenue share dilutes the group margin [S1]. Share-based payment costs roughly doubled from R82m in FY2024 to R147–154m in FY2025–FY2026 after retention schemes were introduced [S1][S3]. FY2026 also included a new R32m expected-credit-loss charge on long-term receivables [S1].

Earnings. HEPS (continuing) grew at a 15% CAGR from FY2022 to FY2026 (derived). Growth stalled in FY2026, with HEPS up only 0.2% at 2,283c [S1]. Lower associate income (Gigajoule engine downtime, dollar liquidity costs and lower Matola gas sales after the Mozal smelter closed) and a Russell Homes overhead loss weighed on earnings, partly offset by a lower tax rate [S1].

Balance sheet. Shareholders' equity more than doubled, from R2.9bn in FY2022 to R6.0bn in FY2026 [S1][S4]. Cash rose to R4.5bn, split across South Africa (R2.05bn), the rest of Africa (R0.93bn) and the UK (R1.49bn) [S1]. Borrowings are confined to asset finance and leases. Off-balance-sheet performance guarantees totalled R8.5bn [S1].

Cash flow inflection. FY2026 cash generated from operations fell to R1.4bn from R1.9bn because of a R560m working-capital outflow. Receivables rose R909m, worsened by overdue public-sector debtors, partly offset by a R441m release of contract assets [S1]. FY2024 had a similar outflow (R711m) [S3]. Working capital is therefore the main swing factor in FCF.

Management guidance

WBHO does not give numerical guidance. Management says the order book leaves the group well positioned for FY2027. It also flags that geopolitical tensions in the Middle East and Eastern Europe have changed the inflation and interest-rate outlook, making procurement more cautious [S1]. Expected divisional trends:

• Civil engineering should grow strongly: its order book rose 127%, and 160% of FY2026 revenue is already secured for FY2027.

• Gauteng building volumes should roughly double (FY2027 secured work equals 190% of FY2026 executed work), but at very low margins.

• R&E is well covered for FY2027–FY2028, but faces SANRAL procurement-gap risk.

• The rest of Africa should benefit from Eswatini and Mozambique work.

• The UK outlook is mixed [S1].

Consensus growth expectations: not publicly disclosed.

Bull case

1. Order-book-led volume recovery. Secured FY2027 work of R24.6bn, Civils at 160% revenue cover and Gauteng building at 190% volume cover point to a return to revenue growth in FY2027 [S1].

2. Renewables and the airport create a multi-year runway. Four preferred-bidder renewable projects, Naos and Khauta execution, the R8bn Cape Winelands Airport from 2027 and R3.5bn of unbooked Olifants work add up to a pipeline that few competitors can match [S1].

3. Deep-value valuation. A P/E of 6.3x, a dividend yield of 4.3% and an EV/EBITDA of about 2.2x on the net-share basis, combined with ROE of about 20%, cash-funded growth capacity and 3.7x dividend cover, leave room for re-rating or higher payouts [S1][S18].

Bear case

1. Margin dilution as mix shifts. Low-margin Gauteng building, lower-margin roadwork and a shrinking rest-of-Africa contribution could push the operating margin below 4.5% even as revenue grows [S1].

2. Public-sector cash and procurement risk. Overdue public debtors drove a R909m receivables build in FY2026. A SANRAL procurement gap could leave R&E idle from FY2028 [S1].

3. Execution and macro tail risks. One loss-making contract (N2 Makhanda) erased much of R&E's margin progress. A history of large losses (Australia, R2.2bn in FY2022), the fatalities in FY2025–FY2026, UK insolvency risk and inflation shocks all argue for a structurally low multiple [S1][S4].

Catalysts and monitorables (next 12 months)

• H1 FY2027 trading statement (if required) and interim results (expected early March 2027).

• Financial close and awards on Phofu, Middelvlei, Stellar and Great Karoo.

• Start of Cape Winelands Airport construction (calendar 2027) and the contract value booked into the order book.

• SANRAL tender volumes; Olifants Phase 2b progress; Upper uMkhomazi and Ncwabeni releases.

• Durban Pier 2 decision (bid validity expires December 2026).

• Working-capital normalisation and collection of public-sector debtors.

• Rest-of-Africa margins after West Africa completions; the Ivory Coast bid outcome.

• Russell WBHO order-book replenishment (the £52m and £40m PCSAs).

• Oldham land sale proceeds at Russell Homes.

• FY2026 Integrated Report (expected late October 2026): employee numbers, emissions and remuneration.

• Employment Equity Act compliance and Public Procurement Act regulations.

Concluding analyst verdict

WBHO has completed its post-Australia rehabilitation. It is now a cash-rich, lower-risk contractor with a record-level order book. The FY2026 results confirm that it can protect margins in a flat year: group operating margin held at 4.8%, segment margin at 5.5% and ROE at about 20%. They also show that it cannot yet generate organic growth. Revenue was flat at R28.3bn and HEPS edged up 0.2% to 2,283c. Three factors produced this standstill: a collapse in Gauteng building, the end of high-margin West African mining contracts and a gradual roadwork ramp-up.

FY2027 looks better on paper. Secured work equals 86% of FY2026 revenue, and Civils and Gauteng building enter the year with exceptional cover. The renewables franchise (Khauta, Naos and four preferred-bidder projects) and the Cape Winelands Airport give WBHO a medium-term pipeline that few South African competitors can match. The trade-off is quality of revenue. Much of the new building work was won at very low margins, roadwork margins are structurally modest, and the high-margin rest-of-Africa contribution is shrinking. Investors should therefore expect revenue growth with flat-to-lower margins rather than an earnings breakout.

The balance sheet stands out. Cash of R4.47bn sits against negligible borrowings, although a meaningful portion is funded by R3.0bn of customer advances and excess billings and is not truly free. The FY2026 working-capital outflow and overdue public debtors are the main warning signs for cash conversion.

At about R144, the shares trade on roughly 6.3x HEPS with a 4.3% yield covered about 3.7x. That price already discounts much of the cyclical and execution risk. The investment case depends on management converting the pipeline without repeating the N2 Makhanda experience. On balance, the evidence supports a constructive but disciplined stance: an undemanding valuation and strong liquidity, offset by margin-mix and public-sector payment risks that justify a persistent sector discount.