Investors avoid construction firms

The multiplicity of big infrastructure projects and construction companies’ big profits have left investors cool, despite the market’s recent rally. After last Thursday’s session, the share price of Aktor was down by 5.7 percent this year, while that of J&P Avax was down 11.01 percent. Wary over a sector that produced some spectacular bubbles during the 1999 market (does anyone still remember the company that, while close to bankruptcy, had a market capitalization higher than that of Germany’s Hochtief, the world’s fifth-largest construction firm?) investors are not easily lured by the siren song of construction activity. Of course, the reasons are not exclusively psychological: with the exception of a few construction firms which took advantage of the method of awarding public projects by using a mathematical formula to get the biggest slice of the pie and increase their turnover and profits, most construction companies are worse off than they were two or three years ago. Some have lost their licenses to undertake big projects and can only act as sub-contractors. A few of those are also companies in financial straits, such as Ergas and Technodomi, but others have simply been squeezed out of projects, like Aegek (whose share, incidentally, has bucked the trend, rising 41 percent so far this year). The sector also faces the uncertainty of the post-2004 era, when the infrastructure projects related to the Olympics will be completed. Most believe that both turnover, and profit margins, will be squeezed. In the case of Aktor and Hellenic Technodomiki, for example, two analyses by brokerages concur that turnover and profits will fall both in 2004 and 2005 after an exceptionally good 2003. At the moment, the group’s backlog of projects, at 1.3 billion euros – roughly equivalent to 20 months’ turnover – is Europe’s highest. The manipulation of public tenders has also inflated construction companies’ profit margins: they average 15 percent in Greece, while in the rest of Europe they lie between 5 and 8 percent. A reform of the public tender process will put an end to this disparity.