After a few years of rightsizing its business by radically selling off noncore assets, Aveng has evolved into a significantly simpler business to understand.
With the structural changes complete, the group now has three operating brands: McConnell Dowell, Built Environs and Moolmans. These three brands operate across the infrastructure, building and mining sectors.
Judging from the group’s recent results for the year ended June 2024, the simpler business structure and sharper geographical focus seem to be paying off. These results built on those achieved in the first half.
The group, which reports in Australian dollar, reported an operating profit of A$34.5m, up more than 100% from 2023.
With the group now in a much stronger financial position and generating a positive cash flow, it was able to pay down debt, resulting in a stronger balance sheet at the end of the period under review. Looking ahead, projects that were affected during the pandemic and had a negative impact on margins are now nearing completion.
The group has been able to improve the quality of the work it takes on, with contracts that have higher embedded margins. This means that overall margins are trending upwards, which is great for the bottom line. McConnell Dowell is clearly the driver of the group’s financials with about 78% of group revenue coming from the infrastructure segment where it operates.
With about 81% of this segment’s revenue now generated from Australia, it is not surprising that the group’s executive management has been moved to the east coast of that country. This is a clear indication of its geographical focus.
The Built Environs business, which operates in the building sector in Australia and New Zealand, contributes about 13% of group revenue. Though all the projects that the group is busy with are profitable, margins in this sector are lower than those achieved in Aveng’s infrastructure sector business though in line with industry peers.
Despite this cautiously optimistic view on South Africa, Aveng intends to continue to focus on diversifying its mining business geographically
Moolmans, which operates in the mining sector, predominately in South Africa, is the smallest contributor to the group’s financials. This business has been negatively affected by the recent poor growth in the South African mining sector.
It was able to increase its revenue for the financial period under review, but the sector pressure is (for now) being felt in the overall margins of the business. This has led to the group relooking at the overall operational strategy of Moolmans, which is under a new executive management team.
Looking ahead, management is relatively positive across the sectors that the group trades in, especially in the infrastructure and building sectors in Australia and New Zealand. Though the mining sector in South Africa is affected by logistics constraints, Aveng, together with an increasing number of other South African listed companies, is starting to see green shoots in the South African economy after the election and the establishment of the government of national unity.
Despite this cautiously optimistic view on South Africa, Aveng intends to continue to focus on diversifying its mining business geographically and increasing its exposure to other commodity sectors.
Aveng has, after yet another strategic review, concluded that McConnell Dowell and Moolmans should pursue independent operating and growth strategies. This is due to the belief that the two businesses offer different value propositions to investors.
The aim is to structure the businesses so that they can independently access capital to support their own growth and investment strategies. This ultimately means that the intention is to create two independent entities which could mean separately listing McConnell Dowell (which will include Built Environs) on both the Australian Securities Exchange and the JSE while exploring an alternative ownership structure for Moolmans.
For now, it’s not clear if Moolmans will be sold off completely. Though not strictly comparable, this strategy is the polar opposite to what WBHO did when it exited its Australian business, which was dragging down the South African business. The WBHO share price rocketed subsequently.
From a valuation perspective, Aveng is by most valuation metrics not expensive, but investors may adopt a wait-and-see attitude to fully understand how the group intends to deal with Moolmans in order to unlock value for shareholders.
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