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Aveng shares advance for a third straight day

On news of its R282m claim settlement, debt repayment plan and progress with the disposal of Trident Steel – its last material non-core asset earmarked for sale.
Aveng CEO Sean Flanagan will no doubt be happy about the positive market reaction to the group's latest Sens update. Image: Moneyweb

Shares in construction and engineering group Aveng advanced for a third straight day on Thursday, trading almost 10% up at R16.70 around 4pm, following the group’s JSE Sens announcement on Tuesday related to the settlement of an uncertified claim in Australia and its update on external debt repayments.

Aveng's share price

The group’s share price closed over 6.6% up (at R15.20) on Wednesday after rising 5.68% (R15.06) on Tuesday, also buoyed by an update on progress it is making with the planned disposal of non-core asset Trident Steel.

Aveng noted that it has reached settlement on and received payment of R282 million for a long-outstanding claim that has been subject to protracted legal proceedings.

It said the claim was reported in the amounts due from/(to) contract customers in its results for the six months to end-December 2021. In these results, Aveng reported R1.67 billion as the net amounts due from contract customers.

Read: Stefanutti, WBHO and Aveng settle multi-million-rand civil damages claim

However, Aveng on Tuesday did not indicate by how much this settlement will reduce this amount. The group only noted that the settlement results in a small profit to the previously reported position, reduced ongoing legal costs and the removal of litigation uncertainty.

This dispute dates back prior to March 2016, when Aveng’s Australian subsidiary McConnell Dowell instituted action against a client to recover previously expended costs.

“Through the course of this protracted litigation and delay, McConnell Dowell has significantly grown its business despite having liquidity tied up in this dispute,” said Aveng.

“The resolution of the dispute is a significant achievement and the resulting additional liquidity has currently been retained in McConnell Dowell and is reserved for future investment opportunities that add incrementally to the group’s growth and performance,” it added.

Debt reduction 

Aveng also announced that it has continued its debt reduction strategy during the year to end-June 2022.

The group made a scheduled repayment of R275 million in June 2022 to reduce its external debt, through cumulative repayments by R350 million in the financial year to end-June 2022.

“Should the Trident Steel transaction be successfully concluded, it is expected that the proceeds will be utilised to settle the remaining debt in South Africa, create further liquidity and strengthen the financial position of Aveng,” it said.

The disposal of Trident Steel is in line with Aveng’s 2018 strategy of disposing assets it deemed non-core. To date, Aveng has received total proceeds of more than R1 billion from the disposal of non-core assets.

Trident Steel is the only remaining material asset yet to be disposed of in terms of the strategy.

Read:
Aveng: Operational and trading updates ‘factually accurate and aligned’
Aveng eyes share consolidation by mid-December
Aveng appears to be on the road to rehabilitation

Delayed disposal

The group has experienced difficulty in finding a buyer for Trident Steel despite the business’ impressive recent financial results.

The delayed disposal resulted in Aveng being required in terms of International Financial Reporting Standards 5 (IFRS 5) to reclassify Trident Steel as a continuing operation, because the criteria to disclose Trident Steel as held for sale and discontinued operations were not met at end-December 2021.

This reclassification partly contributed to Aveng’s normalised earnings per share slumping by 55.6% to 67 cents in the six months to December 2021 from 151 cents in the prior period.

Aveng confirmed on Tuesday that negotiations continue to progress on the planned disposal of Trident Steel.

The group reported last month it was in advanced negotiations with a credible buyer to dispose this business as a going concern.

It said the due diligence is well advanced and will be completed as soon as possible, adding the transaction is subject to the conclusion of black economic empowerment (BEE) participation in the transaction and the completion of legal agreements.

Aveng noted the value of the transaction is expected to exceed Trident Steel’s reported net asset value in the group’s 2022 interim results.

Chronux Research analyst Rowan Goeller said on Wednesday Aveng is getting some money back from the Australian claim, but the group still has “quite big debt”.

“As always with these projects, it’s many years down the line, it’s less than what they hoped for and all the legal costs and other costs associated with fighting that claim are probably mounting up on the other side. But it’s some money in the bank.”

Goeller said that Trident Steel will also bring in some money when that sale happens, adding: “It’s slow progress and Aveng is not out of the woods [yet].”

Another analyst, who did not want to be named, said Aveng’s claim settlement is positive, particularly as the group can move on now.

However, the analyst said construction companies unfortunately at the moment are all about claims, whether these are Covid-19 or “scope creep” related.

In regard to the planned sale of Trident Steel, the analyst said: “Let’s [wait and] see. At the end of the day, talk is cheap. Let’s see when the deal concludes and what they come up with.”

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