Aveng positions for stronger growth

JSE-listed construction and engineering group Aveng is showing signs that it is emerging from its recent financially troubled past and is poised for stronger growth.

The group on Tuesday reported an almost 23% increase in work in hand to R30.8 billion in the year to end-June 2022, driven by its Australian subsidiary McConnell Dowell and a strong pipeline of opportunities.

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McConnell Dowell

Aveng CEO Sean Flanagan said McConnell Dowell’s work in hand increased by 33% to Au$ 2.5 billion at end-June, which supports further growth in the 2023 financial year.

It secured a further Au$883 million of new work post the group’s year-end, including the new Bridgewater Bridge project in Tasmania.

Flanagan said McConnell Dowell is also the current preferred bidder on tenders valued at Au$1.7 billion, has Au$2.5 billion in submitted tenders outstanding, and has a total project pipeline of Au$8.7 billion.

“Ninety-one percent of its revenues for its 2023 financial year are already secured. That is the best position I have seen in a construction environment in my 40 years in the industry.”

Flanagan added that McConnell Dowell has 88 active projects, 85% of which are performing at or above tendered margin.

He said 63% of Aveng’s work in hand is out of the business unit in Australia, which has been a tremendous performer in the past 12 months.

“We continue to see that as our growth engine,” he said.

Moolmans

Moolmans, the group’s southern African open-pit mining business, had R3.1 billion in work in hand at end-June, representing 78% of its budgeted revenue for the year ahead.

Post year-end, Moolman was awarded a new rehabilitation project at Klipspruit mine.

Flanagan said Aveng also sees significant opportunity for growth in the group’s mining business, with Moolmans’ total pipeline of R55.6 billion.

This includes R11.4 billion in tenders where Moolmans is the preferred bidder.

Moolmans also has tenders worth R23.3 billion awaiting a decision and is preparing to submit tenders for contracts valued at R17.4 billion.

Flanagan said Moolmans’ significant project pipeline includes existing and new customers in gold, copper, lithium and uranium projects in west and sub-Saharan Africa.

Trident Steel

The CEO said the growth prospects of Trident Steel, the group’s only remaining non-core business, remain positive and are supported by significant new component supply awards and increasing production with existing original equipment manufacturers (OEMs).

He said it is currently preparing its operations for the new Ford Ranger and Volkswagen Amarok models, which will be launched later this year.

“Negotiations for the disposal of Trident Steel remain at an advanced stage and management remains confident of closing this sale,” he said.

The numbers

The group reported improved revenues, gross margins and operating earnings combined with strong cash generation underpinned by a stronger capital base in the year to end-June.

“Aveng has completed its transition from recovery and turnaround to profitability and the group is now in a position to focus on significant long-term growth prospects,” Flanagan said.

Group revenue rose 1.9% to R26.2 billion from R25.7 billion.

Earnings before non-recurring items improved by 7.5% to R576 million from R536 million.

Flanagan said the group’s gross margin increased to 8.1% from 7.6% in the previous year, demonstrating the sustained improvement in the quality of the group’s operational performance.

Headline earnings per share of 252 cents were lower than the restated 1 016 cents per share in the previous year. A dividend was not declared.

External debt was reduced by R398 million to R481 million, while the historic bond guarantee exposure dropped 37% to R350 million.

“The balance of our external debt will be repaid with the proceeds from the sale of Trident Steel, which will create additional liquidity in our business,” said Flanagan.

“We are satisfied with our performance this year and look forward to continuing on our upward growth trajectory, while remaining alert to the risks and opportunities in our external environment.”

Listen: CFO Adrian McCarthy and Fifi Peters discuss Aveng’s annual results

Analyst’s take

Rowan Goeller, an analyst at Chronux Research, said it looks like Aveng “is emerging from the trenches” and starting to operate in a fairly normalised environment for a construction company.

He said McConnell Dowell is starting to deliver decent revenues and earnings and the order book is looking fairly strong, while Moolmans is steady and now at the point where it is reinvesting in fleet.

“The core business[es] of McConnell Dowell and Moolmans look steady and looking for growth in the order book going forward.

“This means Aveng might be coming through a couple of rough years, with the core businesses starting to show growth and stability,” says Goeller.

“Like Murray & Roberts, Aveng has a big order book in Australasia through McConnell Dowell and the execution of that needs to be profitable.

“However, if you look at McConnell Dowell’s track record over a couple of years, its execution has been good.”

Shares in Aveng declined 4.44% on Tuesday to close at R16.15.