Avengers’ endgame deferred

A few years ago, when construction and engineering specialist Aveng traded as a penny stock and online forums buzzed with the optimism of self-styled “Avengers”, the investment case was little more than a wager on survival. Since then, asset disposals, a rights offer, debt restructuring and a share consolidation have stabilised the group and shifted the narrative to value unlock and asset monetisation.

On the face of it, the value gap is stark. Aveng’s market capitalisation is roughly R600m against a reported NAV of about R2.2bn and a net cash position of R2.8bn at December 31 2025. In other words, the market is effectively ascribing a negative value to the underlying operating businesses. Management plans to close that discount by unbundling the group’s two core platforms — Moolmans and McConnell Dowell — through a disposal or separate listing and, once value has been extracted, likely delist what remains.

However, the Avengers may have to wait for their endgame. Recent signals suggest that the value-unlock process will take longer than first envisaged. The board now speaks openly of a multiyear runway to fully stabilise both businesses before any disposal can be credibly pursued. A revealing indicator is the retirement of CEO Scott Cummins at the end of January. At 63, he made clear he could not commit to the three- to five-year horizon the board believes is necessary to normalise performance, resolve legacy contract issues and position the assets for sale or listing.

The first of those assets, Moolmans, is Aveng’s South African contract mining division, specialising in large-scale open-pit operations, mainly in the Northern Cape. Its heavy earthmoving fleet is currently deployed at the Gamsberg zinc and lead mine and the Tshipi manganese mine, where it provides drilling, blasting, loading and hauling services under long-term contracts.

The strategic intent is to dispose of the business to a locally aligned, broad-based BEE-compliant industrial or mining group. However, ongoing commercial disputes at Tshipi — a contract that management has described as unsustainable in its current form — have already derailed one potential transaction and delayed efforts to pursue further disposal discussions.

The larger and more strategically significant asset (more than 90% of value) is McConnell Dowell, the Australasian infrastructure contractor that operates across Australia, New Zealand, the Pacific Islands and Southeast Asia. It focuses on transport, ports and coastal works, water and wastewater, energy and resources infrastructure. Built Environs, the commercial building arm operating in Victoria, South Australia and New Zealand, sits alongside it as the building segment.

The numbers from the interim results to December 2025 show a business that has stabilised operationally

McConnell Dowell delisted from the Australian Securities Exchange in 2003 after Aveng, which held a 63% stake at the time, bought out minorities. More than two decades later, the board has explored options to separate the business again, including a potential Australian listing or sale to Australian investors. However, problems on legacy contracts have forced the board to delay separation alternatives and conclude that, for now, retaining ownership remains the best route to shareholder value.

Those legacy contracts also mean the headline net cash figure warrants caution. While forecast losses on the Jurong Region Line (J108) in Singapore and the Kidston Pumped Storage Hydro project in Australia have largely been provided for in the financial statements, the associated cash outflows will materialise only in the second half of 2026 and into 2027. Both projects have been materially derisked — J108 has reached structural completion — but final financial outcomes remain contingent on completion and commercial settlement.

The numbers from the interim results to December 2025 show a business that has stabilised operationally. Revenue for the six months declined 10.8% to A$1.2bn amid softer infrastructure markets in Australia and New Zealand, but the group returned to a modest operating profit before capital items of A$9.4m, compared with a loss in the prior period. Work in hand increased to A$3.5bn, up from A$3.2bn in June 2025, reflecting a solid order book across infrastructure, building and mining.

Aveng’s core proposition remains compelling. At current levels, investors are effectively paying about R600m for R2.2bn of net assets and R2.8bn of net cash, along with two established, technically credible engineering platforms that generate cash, operate under recognised brands and carry substantial order books in their respective markets. Even after factoring in the inevitable cash outflows on legacy contracts and the execution risk inherent in any disposal process, the implied discount offers a meaningful margin of safety.

The critical questions are execution and patience. Can management close out Kidston and J108 without further nasty surprises? Can Moolmans either resolve or exit Tshipi? And can McConnell Dowell, once cleaned up, attract a valuation in Australia that properly reflects its scale, order book and engineering capability?

If those boxes are ticked over the next three to five years, Aveng’s current market capitalisation could prove to be a bargain. If not, the discount may persist. Construction is a notoriously unforgiving industry, where thin margins leave little room for error and missteps can quickly erode capital. For some of the self-styled Avengers, that volatility may be part of the appeal — but it is not without risk.