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Aveng(ers) Assemble!

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Update on Aveng(ers)

Has Aveng started its road to recovery?

Aveng Group Limited (JSE:AEG) 

After being listed for more than 140 years, Aveng saw its share price lose over 99% of its value dropping to 1 cent with the deterioration of the South African construction industry.

As part of its restructuring, Aveng diluted existing shareholders with rights issues as the company raised R400 million (initial rights offer R300 Million and R100 million follow-up offer).

The group's share price rose from 2 cents to 7 cents over six months while trending amongst the INVSTR community as one of the companies expected to see growth as the South African construction industry recovers.

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Is Aveng focused on south construction?

Aveng's South African segment is one of the loss-making segments, which reported a loss of R1,5 billion in revenue from R10 billion to R8,5 billion, followed by the rest of Africa, including Mauritius, with a decline of 42.8% from revenue of R509 million to R291 million.

The group's construction and engineering operations in South Africa and the rest of Africa, including its manufacturing and processing, are reportable segments classified as discontinued operations that do not form part of the group's overall long-term strategy.

As the INVSTR community would say: 

Avengers, let's assemble!

Bringing together all company segments, Aveng's revenue for its Fiscal year 2021 (FY21) increased to R25,7 billion; the Australian segment reported its revenue at R12,6 billion for the FY21 together with New Zealand at R2,3 billion and Southern Asia at R1,9 billion.

The End Game?

Avengers reported its operating earnings of R536 million by June 2021 vs. a R532 million loss the previous year. The Asian and Australian construction and engineering segment, making up 66% of the company’s earnings, delivered R321 million in operating earnings after a R162 million loss vs. previous competitive period (pcp) on June the 30th. This was followed by the mining segment, contributing 16%, with earnings of R239 million vs. R38 million.

Highlights on Aveng's financial performance for June 2021 vs. June 2020 include:

  • Operations free cash flow increase to R1,5 billion inflow vs. R5 billion outflow
  • Net Cash position of R1,1 billion vs. R1,0 Billion net debt position
  • Headline earnings increased to R751 million vs. a loss of R950 million
  • Attributable earnings increased to R990 million vs. R1,1 billion loss
  • Earnings per share of 2,7 cents vs. 4,6 cents loss
  • Headlines earnings per share of 2.0 cents per share vs. 4.0 cents loss
  • Work in hand decreased to R25,3 billion vs. R26,8 billion

McConnell Dowell and Aveng mining currently make up 79% and 21% of Aveng's work in hand operations.

While the stock may start to see the light of profits, keep in mind that it's currently still trading at a micro-cap share price associated with a lot of volatility.

Aveng trading above R1

As part of the restructuring, the group’s management proposed a share consolidation which will result in the stock trading above R1 per share, subjected to shareholders approval 

This will mean that take for example

  • If you had 3000 shares valued at R30 (1c per share) and the share consolidation ratio is 100:1
  • After the share consolidation, you will have 30 shares at R30 (R1 per share)
  • Shares below 100 will be refunded in cash as per fractional entitlement.

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Roundup

Loss is limited to 100%, and growth is limitless. When dealing with penny stocks, be wary of the risks associated. While holding for the long term may be rewarding, losses may also occur due to high volatility caused by events such as share consolidation and news around the company.

 

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Sources – EasyResearch, JSE Sens, Aveng Limited

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