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14 March 2012 23:15

Aveng interims: Roger Jardine (Aveng) & Khanyisa Ngesi (Momentum)

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Alec Hogg is a writer and broadcaster. He founded Moneyweb

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    Did the State of the Nation address herald the start of better things?


    ALEC HOGG: Construction group Aveng has weathered the construction downturn a lot better than its fierce rival Murray & Roberts, but it also needs fulfilment of government’s plans to turn South Africa into a massive work site to start seeing its share price move in the right direction. I asked chief executive Roger Jardine – who was in the studio today to tell us about the most recent set of financial results – whether the State of the Nation address, where President Zuma spoke a lot about an infrastructure boom in South Africa, heralds the start of better things.

    ROGER JARDINE: We've seen up to 35% of projects not coming to market, or being delayed. And this recent State of the Nation address and budget again talks about infrastructure . I'm personally encouraged because I think the rhetoric and the political will seems to be more pronounced. But there’s a big difference between policy and implementation and I think a strong partnership between government and the private sector is required, as we demonstrated during the 2010 World Cup, where we delivered on time world-class infrastructure. South African construction and engineering firms are world-class and we can deliver. And so I think the inflection point really is the moving to the implementation, the rollout. And to do that, yes, there's a political will. We will need a corps of officials who can scope, adjudicate, award and manage large contracts.

    ALEC HOGG: Are they there, though? We heard from the President that he’s got the coordinating committee with himself or the deputy president on it, all the related Cabinet ministers, premiers of provinces, and more. It sounds like the heads have been bashed together in the right places, but are you seeing any consequence?

    ROGER JARDINE: I think there’s a general feeling – and it's coming out government itself in terms of capacity issues, especially as you go from national to provincial to local government, where we are seeing these project dealers, and I think it just underscores the important of a stronger relationship between government and the private sector.

    ALEC HOGG: Khanyisa Ngesi is the construction analyst at Momentum Asset Management. She joins us now. Khanyisa, just running a line through the Aveng results, what was your impression? The revenues are up nicely but the earnings per share down.

    KHANYISA NGESI: Just as a main point, Alec – the overriding theme for this current reporting season for the construction sector has been project execution, specifically for Aveng, although we get a sense that relatively things are going well. Where things are not going well it has been significant enough to impact divisional profitability, as you’ve just mentioned.

    ALEC HOGG: Ja, he was talking a lot in our discussion – and the full podcast is on Moneyweb – he was talking about Australia and some projects that went off the rails there.

    KHANYISA NGESI: Yes. If you look at the QCLNG project specifically in Australia, which is a concern going forward into the second half and thus the full year for Aveng in terms of profitability, and also…in terms of the structural engineering… These are not project-execution risks and concerns that are new but, as Roger mentioned as well, going forward one would be concerned in terms of the profitability specifically of Australia, where you see that, of the R46bn order book for Aveng, 60% of that order book is in Australia. So going forward execution and the risk management of some of those projects in that order book will be a concern, and obviously something that one will keep an eye on.
    ALEC HOGG: They did a whole lot better than Murray & Roberts. Aveng has nearly R5bn in cash on their balance sheet, Murrays has to go to shareholders to raise R2bn. Which of the two shares would you be buying now, if any?

    KHANYISA NGESI: Well, Alec, if you look, with a NAV of R32.73 for Aveng, of which almost R12 is cash per share, with that strong order book and a price to book of about 1.2 on today’s spot close of R38, there’s lots of room for error and manoeuvring in there. And it can easily be absorbed by this cash-rich balance sheet. At this point in time you look for quality of the order book and you look for health of the balance sheet. And specifically the balance sheet health should give resilience to be able to be able to weather industry conditions currently. So based on that I would say Aveng is the one that you’d be looking at on some of those metrics.

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