Aveng (JSE:AEG) Research Update

Highlights:

• Arrowhead is updating its coverage on Aveng Limited (“Aveng” or “the Company”) with a fair value bracket of ZAR 30.32 – ZAR 37.06 (Share Price on September 27, 2022: ZAR 13.70) based on Discounted Cash Flow Valuation and Comparable Company Valuation.
• Aveng is a diversified business group providing infrastructure development, contract mining, steel beneficiation, and a wide range of related products and services through its subsidiaries. The Group is headquartered in South Africa and its projects are primarily in Australasia, South-East Asia, and Africa. The Company is listed on the Johannesburg Stock Exchange – (JSE: AEG).
• Aveng reports its revenue under four segments, namely Construction and Engineering (Australasia and Asia), Mining, Construction, & Engineering (South Africa and the rest of Africa), Manufacturing and Processing, and Other & Eliminations. The Construction & Engineering and Mining business divisions accounted for approximately 86% of the Group’s Total Revenue in FY’22. These two businesses are undertaken by group entities McConnell Dowell and Moolmans, respectively.
• Until 2018, Aveng had several business units providing manufacturing, construction & engineering, and steel beneficiation services across several countries. However, the large number of businesses led to inefficiencies and the Group faced significant challenges in its operations and was unprofitable from FY’14 to FY’20.
• To achieve profitability and deleverage its balance sheet, the Group devised a comprehensive plan in 2018, whereby it decided to focus exclusively on its key operating units and dispose of its unprofitable business verticals. Since the implementation of this plan, the Group has started emerging from the significant challenges that it faced in the recent years.
• The Group is progressing well with the restructuring plan initiated in 2018 to dispose of the unprofitable units and reduce debt on its balance sheet. To continue being profitable and focus on its potentially viable and profitable business units, the Group will be focusing exclusively on McConnell Dowell and Moolmans and selling all the other entities.