Back-to-work stock pick

Where there are cents, rands can be made. In the Australian context, where there are cents, dollars can be made.

As competition in the market continues to grow, we look into two stocks – one Australian and one South African – which consolidated their shares during December 2021 in preparation for more growth opportunities.

Aveng Group Limited (ZAR:AEG)

After trading at an all-time low of less than R0.07 during the 2021 calendar year (CY21), Aveng embarked on a share consolidation at a ratio of 1 share for every 500 shares held. This resulted in the company’s share price closing at around R27 per share.

Prior to the consolidation, during the 2021 fiscal year (FY21), Avengs’ Australian, New Zealand, and Southern Asia business revenue was at R12.6 billion, R2.3 billion, and R1.1 billion respectively. Including other businesses, the group’s total revenue was R25.7 billion for the period.

During the year, Aveng raised R400 million through two rights issues, one for R300 million and one for R100 million. Focusing on mining, after disposal of various other assets, the groups work-in-hand in 2021 was between McConnell Dowell (79%) and Aveng mining (21%).

On 31 December 2021, Aveng’s work-in-hand cash was sitting at R29.1 billion, up from R25.3 billion on 30 June 2021. This included new work from the group’s business segment, McConnell Dowell.

Pipeline project value for McConnell Dowell increased to AU$2.1 billion on 31 December 2021, from AU$1.7 billion on 30 June 2021. Work in-hand for the business expanded to AU$2.2 billion during the period.

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Peak Rare Earths Limited (AUD:PEK)

Are you buying the dip? As the inflation data took a toll on global markets, the sell-off was reflected in Australia. As a result, the Peak Rare Earths share price plummeted by over 12% on a single day – 25 January 2021. Trading at AU$0.70, Peak is an Australian exploration company with projects in Tanzania.

A recap of how the company reached its new price: In December 2021 the company approved and proceeded with its capital consolidation (share consolidation). The consolidation was at a ratio of 1 share for every 10 shares held, resulting in a new share price of around AU$0.80.

The consolidation came after the company highlighted some of its milestones, including the approval of a special mining license in Tanzania for the Ngualla Rare earth project. During CY21, Peak raised AU$30 million via two trench placements, retail investors, in addition, through a share purchase plan, raised AU$1.675 million, the capital was raised at $0.09 per share.

According to the company, speculations of Chinese consolidation, growth in global electric vehicle sales, and price increases in Neodymium and Praseodymium (NdPr) Oxide prices are some of the elements that may contribute to future profitability. As of 30 September 2021, Peak’s cash on hand was AU$20.6 million.

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Roundup

While share consolidation may be associated with bad sigma, as an investor you also want to consider the positive reasons behind a share consolidation. These may include positioning the company to raise more capital for future projects through equity funding or protecting a company from hostile takeovers that may occur through tender offers, especially during this period where the rate of mergers and acquisitions is on the rise, globally.

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and want to know more about our other stock picks?

Read: Most bought stocks during “The Dip?”

Sources – EasyResearch, Peak Rare Earths Limited, Aveng Group Limited.

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