result of limited investment in
infrastructure projects, the impact
of weaker commodity prices and a
subdued manufacturing and steel
environment. Given these acute
challenges we don’t foresee a
change of fortunes for the group in
the short to medium term.
PROSPECTS
While the underperformance by
SA’s big construction companies
is to a greater extent a result of
external factors, it is exacerbated
by players’ own doings. Poor project
execution and planning have
resulted in a number of projects
taking longer to complete than
scheduled, causing cost overruns
which are squeezing the already
paper-thin margins. Because
execution risk is difficult to predict,
valuations are challenging.
Aveng’s major strength has
been its geographic and sector
diversification. With operations
well spread across Africa, Asia
and Australia, it was able to
hedge against tough domestic
conditions by capitalising on
growth in Australia and Asia.
Unfortunately, with the collapse
in commodity prices, Australasia
is also experiencing a decline in
infrastructure investment, causing a
lot of pain for the group.
This constrained environment
pushed the total order book 22%
lower to R28.9bn, which points to
another likely decline in revenue for
the current year.
The decline in the levels of
secured work in the Australasian
market means that SA, a tightly
contested market, now constitutes
a substantial portion of the
construction and engineering
order book. With most of the South
African work being low-margin
building projects, group margins
are likely to be thin. Management
says further restructuring may be
on the cards if it fails to secure new
contracts before the end of the
year, which is also bound to pile
more pressure on margins.
Additionally, Grinaker LTA – its SA
based subsidiary which has been in
a loss-making position for years, is
likely to continue putting pressure
on the bottom line.
Overall, the outlook for Aveng’s
markets remains weak as a
Aveng Grinaker-LTA Kusile Power station
22
ISSUE 6 – SEPTEMBER 2015
Bull factors
•
•
Having the best sectoral and
geographic diversification
among the big construction
groups will help it withstand the
tough times
Stabilisation at Grinaker-LTA
after a management reshuffle
as the subsidiary is expected to
break ]