Reunert | No power for growth

Reunert has navigated a decade of declining cabling demand with HEPS flat since FY'08, through cost containment and protecting its balance sheet. In our view, Reunert requires an improvement in power infrastructure spend in South Africa to grow HEPS above inflation. Eskom is no longer a top 10 customer for Reunert. Cabling production declined from c.45k tons p.a. in FY'08 to 30k tons in FY'19. Cabling contributes c.50% of Group revenue despite operating at c.67% of FY'08 production (tons). Reunert has focussed on lower margin retail sales to compensate for the decline in infrastructure spend from the government. Electrical Engineering's operating margin declined 500bps since H1'17 due to increased retail sales. Reunert can accommodate any renewed demand from Eskom and municipalities with its existing facilities. However, given the challenges facing the government, including a lack of funding and an overindebted Eskom, we expect limited cabling demand improvement over the medium-term.