Stock plunge rocks Basil Read

Construction giant Basil Read is reeling after losing nearly a fifth of its value on Friday and the Financial Services Board (FSB) confirming this week it had referred a case of insider trading for "enforcement action".

Its stock took the worst hit on the JSE on Friday, down 30% at one stage before closing 18.6% lower - a loss of R73.7-million in value - after it revealed that its headline earnings for last year would fall 510%-530%.

Basil Read's dire predicament rattled confidence further in a construction sector that has been smacked by a litany of bad news over the past two years.

On Friday, CEO Neville Nicolau said: "Yes, it's been a terrible year, but we are well under way to fixing the company."

Nicolau, who took on the top job at Basil Read in September after another tough job at Anglo American Platinum, said he had taken a lot of corrective action in the past six months.

"We have changed management, and we are right-sizing the company. On top of that, we are also doing a corporate restructure and will be looking to sell noncore assets."

Basil Read said the steep drop in profit was because it had been "adversely impacted by losses relating to a number of contracts in the construction and engineering divisions".

This included an R80.6-million write-down for its investment in the Rolling Hills Leisure Estate and another R304-million goodwill impairment.

But confirmation that the FSB has concluded an insider trading investigation that has now been referred to its enforcement committee could further embarrass the struggling company.

Solly Keetse, the head of market abuse at the FSB, said a decision was made to take action based on the evidence gathered by individuals linked to Basil Read. They could be employees, directors, auditors or anyone else who made money by trading based on insider information.

Nicolau said it did not have anything to do with the company itself. "We have not yet received a list of who was investigated, and the FSB usually approach these individuals personally."

The issue relates to trading in Basil Read's stock in June and July last year. The share price began dropping from about R9.40/share in May to R8.20 ahead of a dismal trading update that stated headline earnings for the six months would be "a minimum of 270% lower" than the previous period. Three days before that announcement, Basil Read's shares fell 5.6%.

Back in June, anyone with advance knowledge of the dire trading update could have sold their shares and cut their losses.

This week's trading update reinforces the perception that investors in construction are running scared as government's planned R813-billion infrastructure spend in the next three years has yet to materialise.

Basil Read's stock has fallen 72% in the past year, Aveng's has fallen 39%, Murray & Roberts's has fallen 37%, Group 5's has fallen 42% and WBHO's has lost 15%.

Stephen Meintjes , an analyst with Imara, said: "It really is the perfect storm raging in this industry. Everything that could go wrong did go wrong.

"All these guys have their issues, some worse than others, and the negative sentiment continues. I don't see a turnaround in the short term, but you have to keep a lookout for opportunities."

Basil Read, like most of its competitors, also has the threat of civil claims looming for its role in colluding to fix prices of big projects, including the World Cup stadiums.

Last month, the City of Cape Town lodged a R428-million claim against WBHO for collusion on the Green Point World Cup soccer stadium. Other civil suits may follow.

The 15 construction companies had to pay R1.46-billion in penalties for the collusive tendering, with Basil Read's share being R94.9-million.

On Friday, Nicolau said that while Basil Read hadn't been "cleared", he believed its collusion problems were in the past.

Meintjes said it was too early to tell if Nicolau was implementing the right changes. Basil Read will release its results on Friday, which should show if Nicolau jumped from the frying pan into the fire when he quit platinum for the construction sector.