The progress of construction group Basil Read is to some extent a reflection of the fortunes in recent years of the construction sector of the JSE - and of its present strength.

Moving from a low base, Basil Read's performance over the past five years to March 2007 was propelled by a significant and sustained improvement in operating margins, accompanied by a rocketing share price.

The group's internal rate of return (IRR) of 109,87% over the five-year period led to it occupying fifth place in the prestigious top performers rankings. Basil Read achieved this position despite its largely nonexistent dividend stream. Bright prospects, taken into consideration in the calculations, secured a high ranking.

"We have been able to weather significant challenges in recent years to reclaim our status as a formidable force in the construction sector," says Basil Read's CEO Marius Heyns. There can be few other shares on the JSE - Grindrod comes to mind - that have appreciated so much in a relatively short time.

Without the advantage of a low base, other groups in the construction sector of the JSE stood no chance against Basil Read when it came to measures of growth. Nevertheless, the sector in general has shown a healthy improvement over the past five years. Giants like Aveng, Murray & Roberts and PPC consistently showed good numbers and on occasion surprised a market that believed the construction boom had already been discounted in share prices.

Though the appearance of a construction operation among the top performers should be no surprise, given the well-publicised robust activity in infrastructure development, Basil Read's rise should be treated as a special case.

Not so long ago, the group was flirting with insolvency. A combination of poor management and harsh market conditions resulted in Basil Read reeling from losses for about five years. The group's share price skidded to levels below the 50c mark, having reached a high of 480c at the turn of the century in 2000.

A large portion of Basil Read's problems emanated from its French parent company Bouygues, which held 70% of the group's shares but gave it scant attention. Throughout its years of pain, Basil Read was managed in SA by imported French nationals.

Seeds of a turnaround were planted in 2004 when the group introduced new management with local flair. Bouygues reduced its holdings in the group in 2006 through a black economic empowerment (BEE) deal, which transferred 51% of the group's shares to a consortium featuring BEE group Amabubesi.

Heyns, who was installed as the new CEO, ordered a surgical process that began to produce results from 2005 with the group returning to profitability. The group's turnaround coincided with the state's plan to jack up infrastructure development, which will be a sustained boon for construction players. The state has budgeted more than R500bn for the medium term to improve basic economic infrastructure, including transport, telecommunications and the electricity grid.

The attitude of the general market towards infrastructure development stocks turned to positive, with investors piling in when it became clear that the promise was turning into reality.

A better-shaped Basil Read reaped the rewards. All divisions, from building to mining and roads and civils, are firing on all cylinders. The group's order book has risen significantly over the years, and drove up revenue from R540m in 2003 to more than R2bn last year. More importantly, Basil Read is able to realise more value from its revenue streams, with operating margins quoted at 8,5% last year, up from 4,5% in 2006. The share price touched a record high of R39,45 in October last year.

Heyns and his team are of the opinion that there is still much more value to be had. "The local construction sector continues to offer opportunities for contractors, as government maintains its commitment to infrastructure spend," says the group in its latest results. It is widely believed in the industry that the current unprecedented boom will continue well into the next decade, says the group. Heyns has set his sights on achieving turnover of R5bn in 2010.

Basil Read's confidence is shared by all in the construction sector of the JSE. Proof of that lies partly in the new listings boom experienced by the sector over the past few years, and the reception thereof. Outside a flurry of listing on the JSE's small stocks platform AltX, the main board registered other new listings during the course of last year. These included Stefannuti & Bressan, Raubex, Protech Khuthele, Kwikspace, Seakay and TPW Holdings.

Stefannuti & Bressan, which listed in August last year at R12/share, rose to hit a high of R27,49 in November. It has since levelled off and is currently trading around the R20 mark. Raubex, another established family business which had been a leader in road construction for 30 years, also made its debut and grew strongly.

The sector's giants are firing on all cylinders and also managed to put in a fairly good performance in the Top Companies survey.

M&R leapt from last year's 57th position to 48th. The group produced an IRR of 55,46% over the five-year period and earnings per share growth of 16,4%. M&R's return on equity stood at 11,5%. The group's share price touched a record high of R111,99 in October last year, and has since retreated to levels just below R100. It was quoted around R6 in 2003.

Under the guidance of CEO Brian Bruce, M&R has grown to become a global construction player with revenues approaching the R20bn mark. Among other projects, the group features the prestigious multibillion rand Gautrain rapid rail link. Its order book stands at R38bn. Up to 70% of the group's order book comes from the SADC region and the rest comes from offshore sources, mainly the Middle East.

Aveng moved from 94th to 66th with an IRR of 48% and earnings per share growth of 25%. Aveng seems to have sorted out efficiency constraints in its construction division Grinaker-LTA, which dragged down performance in the past. That is reflected in the improvement of construction's operating margins from 2,1% in 2006 to 4% last year. The group's order book stands around R22bn, which is 16% higher than last year.

Carl Grim - Passed on the baton after a decade

"The accelerating recovery in the performance of the construction interests, together with a sustained contribution from the steel division, will ensure that Aveng remains on track to meet its medium-term objective of an 8% operating profit margin," says the group. That picture will be a source of comfort for Carl Grim, who retired in March after leading the group for 10 years.

Grim led the process whereby Aveng became one of the largest construction groups in the continent. Taking advantage of the unbundling of assets from old conglomerates, Grim pounced and consolidated some of these assets under Aveng (from Anglovaal Engineering). These included the former Grinaker, the construction group that was bundled out of AVI. As Anglo American was kickstarting a process of shedding noncore assets, Grim pounced and landed another construction jewel in LTA, which then merged with Grinaker.

It was an ambitious merger and it has kept Grim on his toes over the past seven years. He spoke passionately about the need to achieve economies of scale in order to make a mark in the globalised construction market.

The execution proved much more difficult. Merging two established corporations with different cultures was never going to be easy, and there was a period where efficiencies were disturbed. That may be the reason behind Grinaker-LTA's lacklustre performance after the merger.

But recent figures suggest that efficiency constraints have been addressed, which means Grim was able to head for retirement this year in peace. He has been replaced by Roger Jardine, who came from BEE giant Kagiso Investment Trust.

Despite running a huge capex programme, cement manufacturer PPC managed 70th position with an IRR of 46%, earnings per share growth of 20% and return on equity of 41%.

Amid concerns of a slowdown in building activity and cement supply constraints (there was a period where cement had to be imported), PPC's share price has been hammered lately. After touching a record high of R53 in July last year, the stock fell to around R35. Latest results for the six months to end-March show a 13% improvement in revenue to R2,9bn and headline earnings increasing 16% to R126/share.

At the release of these results recently, Investment house Imara SP Reid issued a hold opinion on the PPC stock, saying booming infrastructure development activity is expected to offset the slowdown in the residential sector.

On a more general note Imara SP Reid says the sector still rates a premium, though it is worth noting that industry capacity is predicted to again exceed demand by 2011.

On the other hand, the sector (and the country, for that matter) has never before experienced a construction and infrastructure boom on this scale, so this is uncharted territory. It is clear that the competition for skills is set to continue for some years, with a particular premium on project management and strategic leadership.

That's where the big globalised companies will be well placed because the experience gained can be put to good use anywhere in the world.