Aveng reports 15% growth in work on hand

Includes R12bn of new work won by Australian subsidiary McConnell Dowell.
Aveng management is upbeat. Image: Supplied

JSE-listed construction and engineering group Aveng has released an upbeat voluntary trading update and reported a 15% growth in work on hand to R29.1 billion at end-December from R25.3 billion at end-June last year.

Aveng said on Thursday that work on hand included Au$1.1 billion (R12.1 billion) of new work won by McConnell Dowell, the group’s Australian construction, engineering and maintenance subsidiary.

Aveng Group CEO Sean Flanagan said in August 2021 when the group released its annual financial results that the work on hand is the only “yellow on our robot”.

However he indicated that this was partially a function of being very discerning about what revenue the group chased.

The group said on Thursday that McConnell Dowell, Moolmans and Trident Steel have met expectations for the six months to end-December 2021 at both revenue and operating profit levels despite challenging conditions.

It said the operating profit of McConnell Dowell and Moolmans is expected to be in line with budget while Trident Steel is expected to exceed budget for the six months to end-December 2021.

Moolmans is Aveng’s underground mining business and Trident Steel the group’s steel business.

Aveng in August 2021 reported headline earnings per share of R751 million compared to the R950 million loss in the previous year on the back of a 23% rise in revenue to R25.7 billion from R20.9 billion.

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This prompted Flanagan to say at the time that they see the year to end-June 2021 “as a very very significant step forward in our road towards returning Aveng to the status it used to hold”.

‘No meat on the bone’

Peregrine Capital executive chair David Fraser said Aveng’s update is short on detail and the rhetoric sounds pretty supportive “but without the meat on the bone it’s very difficult to assess what they are saying”.

“It’s a bit confusing because they give a lot of information but yet nothing on numbers.

“You’d expect them to at least say something like ‘we hope to return to profitability’ if that is the case or to give some kind of range,” said Fraser.

“They talk about meeting budget but tell us what that means. How much operating profit or a range? It’s talking things up and it’s just that there is no meat on the bone,” he said.

Fraser added that he would be cautious about how much of Trident Steel’s profit is stock profit.

He said steel prices in South Africa are probably between 40% and 60% higher over an 18-month period and Trident Steel used to hold about R1 billion to R1.5 billion in stock.

“If you have literally six to nine months stock on hand in a rising environment you tend to make quite a lot of stock profit,” he said.

Shares in Aveng rose 0.70% on Thursday to close at R28.80.

Aveng’s share price rocketed by more than 45 000% for a brief period on December 8 last year, and eventually closed on the day at R27.19 per share.

This was related to the restructuring of the group’s authorised and issued share capital through the consolidation of every 500 shares into one share, effective from the opening of trade on the JSE on that day. This set a new base for Aveng’s share price.

McConnell Dowell

Aveng said on Thursday McConnell Dowell’s continuing focus on its targeted markets, in a buoyant construction market, has been rewarded with growth of Au$1.1 billion of new project awards resulting in work in hand increasing to Au$2.2 billion at end-December 2021 from Au$1.9 billion at end-June 2021.

The group said new project awards included:

  • The Queen Elizabeth Hospital Stage 3 redevelopment in Adelaide;

  • The Narre Warren-Cranbourne and the Healesville-Koo Wee Rup road upgrade projects in Victoria;

  • Multiple water industry contracts in New Zealand, including the Stage 2 upgrade of the Gisborne Wastewater treatment plant, the Corban Reserve stormwater upgrade and the Barber Grove Seaview Wastewater treatment plant pipe duplication projects;

  • First phase designs and early delivery activities for the Inland Rail project in Victoria, which is a crucial component of a major national transport project to modernise Australia’s freight and supply chain capabilities to support Australia’s growth; and

  • The marine structures contract for BCI Mineral’s Mardi Salt and Potash project in Western Australia, which is the largest capital works contract of this major new mining development.

Aveng added that McConnel Dowell’s project pipeline continues to grow in value, with preferred tender projects worth Au$2.1 billion at end-December 2021 compared to Au$1.7 billion at end-June 2021.

McConnell Dowell expects to successfully convert these preferred positions into new work in hand in the upcoming reporting periods, it said.

Moolmans

Turning to Moolmans, Aveng said the world economy is emerging from the impact of Covid-19 and this has seen a recalibration of market dynamics, which results in stronger commodity prices and bodes well for investment in mining activities across the globe.

The group said Moolmans is well positioned to take advantage of opportunities in Southern and West Africa.

It said the Gamsberg contract came to an end in December 2021 because Moolmans and the client could not agree on mutually acceptable commercial terms.

Aveng reported in June 2021 that Moolmans had secured a R1.5 billion opencast mining services contract at Vedanta’s Gamsberg mine.

The group said the decision to end this contract “is considered prudent and in line with our strategy of only focusing on projects that are commercially viable and that deliver an acceptable return on investment”.

Trident

Aveng said Trident Steel continues to outperform as a steel service centre business, primarily focused on the automotive sector.

“Having been awarded additional first tier supply contracts to OEMs [original equipment manufacturers] and increased levels of production by the OEMs, prospects for the growth of this business remain positive,” it said.

Aveng said as previously reported, the group remains committed to disposing of the Trident Steel business for value in line with its strategy, adding that negotiations are ongoing with various interested parties.

Aveng expects to release its financial results for the six months to end-December 2021 on about February 22.

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