Aveng's share price slump signals lost hope of revival in sector
The fall, although off a low base, is the latest blow for the company and signals that investors have lost hope of a revival of the ailing construction sector amid South Africa’s constrained economy.
Later in the day the share price recovered to trade at 2c.
Ian Cruickshanks, the chief economist at the SA Institute for Race Relations, said yesterday that the share price decline indicated that there was not much hope for growth in the construction sector.
“The market is saying that we think there are zero prospects for growth in the construction sector, and means that it is the end of the business case for Aveng,” Cruickshanks said.
The construction sector, not only Aveng, is in the doldrums amid South Africa’s stagnant economic growth with limited investment in the construction, infrastructure and mining sectors.
Aveng’s peers, Group 5 and Basil Reed, have filed for business rescue and are fighting for survival amid a shortage of major projects.
Cruickshanks believed that the government was not committed to saving the construction sector.
“The government is saying that we do not care about the construction sector. This is a sad outlook for the entire sector, because companies are falling over one by one,” said Cruickshanks, adding that non-payment by state-owned enterprises (SOEs) were problematic.
In August, reports emerged that Aveng had taken legal action against an SOE for non-payment of R50million after completing a project.
The fall in the share price comes as Aveng entered the 2019 financial year in a precarious financial position, as it anticipated the completion of its rights offering and the early redemption of the convertible bond.
The company said in its 2019 annual report on Friday that these capital market transactions were necessitated by the lower-than expected Queensland Curtis Liquefied Natural Gas claim in Australia, which triggered a R5.1billion write-down in uncertified revenue in the 2017 financial results.
“Aveng’s position was compounded by sustained weakness in its domestic markets, which restricted the group’s ability to generate adequate cash flows from its South African operations,” it said. Aveng faced a perfect storm of high debt, a low share price and a complex business structure.
In response to the harsh economic environment, Aveng implemented a strategic review last year and moved to divest from its South African construction and related businesses.
The group also appointed Sean Flanagan as the new group chief executive and strengthened management in the core businesses.
The group reported a R1.54bn headline loss in 2019 from R1.56bn restated loss in 2018, and a net loss of R1.68bn from R3.52bn a year earlier.
The basic loss per share was 10.5c compared with a 653.9c loss a share in the comparative period and the headline loss a share was 9.7c from a 290.1c loss a share in 2018.