Saturday 17 February 2018

A phoenix that rose from Europe's post-war ashes

John Lynch

The writer George Eliot once proclaimed that the happiest nations have no history. It's hard to disagree. If a company in this country, burdened as we are with thoughts of the past, had the misfortune to be linked in the public mind with say, Oliver Cromwell or the Black and Tans, I can't imagine it being given much slack, even in these more tolerant days.

Germany, on the other hand, is quite different. Take the construction firm, Hochtief. Founded in 1887, it survived the Great War and rose to the challenge in the Germany of the 1930s.

It built the autobahns, the bridges and the rail structures that helped the regime of Adolf Hitler consolidate its power base.

It even built the Fuhrer's bunker in Berlin and his famous holiday retreat in Bavaria. No sooner had the war stopped than Hochtief was in there sharing the opportunities offered by the post-war economic boom, helping to rebuild a nation.

It prospered after German reunification and is now one of the great international construction giants with revenues of €24bn and a market capitalisation of €5bn. It focuses on transport, energy and Public Private Partnerships (PPP), and has 81,000 employees. Some 96pc of its revenues are now generated outside Germany.

Hochtief has some spectacular projects under its belt. It built the Bosphorus Bridge in Istanbul and the international airport in Saudi Arabia.

It scored by transforming itself from a cyclical construction industry player into long-term services and concessions, and more latterly has opted to offload noncore business, deeming property management as noncore.

The company delivers its services worldwide through three divisions - Europe, the Americas, and Asia-Pacific; the latter two providing most of the sales. In the beginning of this century, Hochtief made inroads into the US following its purchase of the Turner Corporation. It has since added Flatiron Corporation, EE Cruz and a building contractor in Canada.

Each has its own focus. Turner is a leading player in general building, particularly in the high-growth market segments of education and healthcare and is the No 1 general contractor in the US. Flatiron Corporation is a civil engineering company with a regional presence in the US and Canada, and EE Cruz is a New-York based infrastructure company. Last year, the Americas division had sales of €9bn and earnings of €123m.

The Asia-Pacific division includes the activities of Leighton Construction, a market leader in Australia. The Australian group also operates in more than 20 countries in the region. In the Middle East it operates through its Habtoor Leighton subsidiary. The group has a large portfolio in construction, PPPs, civil engineering and is also the world's largest contract mining company.

In a recent restructuring of its European division, Hochtief decided to concentrate on selected high-growth sectors, like transport, energy and urban infrastructure. The company still sees potential in the German construction market and also plans to step up activity in the UK, Scandinavia and Holland.

Hochtief sales last year were €24bn and net profit €250m. Guidance for this year is positive, with sales projections of €25bn and net profit of €260m. New orders of €25bn are down slightly on the previous year due to the lack of performance in the Asia-Pacific division. On the positive in Europe and the US, new orders rose sharply.

Its shares now trade in the low €70s; a long way from €20 in 2009 but still lagging the €90 per share in 2007.

Investors are pleased with the recent improvement in its cash flow, the plan for a further share buyback, the divestment of its noncore activities, and the increased dividend of €1.90. A key development during the year is to include increasing its stake in Leighton from 58pc to 70pc. For all its Teutonic past, Hochtief is controlled by a Spanish company, ACB and the chairman also happens to be the current president of Real Madrid. However the stock, in my opinion, is not one to chase right now.

Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned.

Irish Independent

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