Aveng Ltd., South Africa’s second-biggest construction company, plans to sell assets worth about 2.5 billion rand ($234 million) to reduce debt and sees earnings improving on higher orders and cost cuts.
“The money will be used basically to reduce our absolute level of debt” and improve liquidity, Chief Executive Officer Kobus Verster said by phone today. The sale of a real estate portfolio and an undisclosed asset are both at an advanced stage and may be completed this financial year, he said.
Earnings per share, excluding impairment charges, fell 4 percent to 120.3 cents in the year ending June 30, the Johannesburg-based company said in a statement today. Its African construction business had an operating loss of 566 million rand. Builders in South Africa have struggled as strike action and slower economic growth hurt infrastructure spending.
“The overall earnings are still disappointing from a margin perspective although we made good progress in a number of areas,” Verster said. The company sees a better performance in 2015, according to the CEO, led by an increase in the order book, fewer “problematic” contracts and cost cuts.
Aveng shares gained as much as 4.2 percent, the most on an intraday basis since July 3, and traded 3.4 percent higher at 24.10 rand as of 1:30 p.m. in Johannesburg. The stock has fallen 9 percent in 2014, compared with a 4 percent decline at Murray & Roberts Holdings Ltd., South Africa’s biggest builder.
“For the moment this stock revolves all around liquidity and their ability to ride out this cash flow storm,” Brent Madel, an analyst at Cape Town-based BPI Capital Africa Pty Ltd., said in an e-mailed note to clients. “The risk return of Aveng would appear to continue to look attractive, but certainly not for the faint hearted.” BPI has a buy rating for Aveng shares.
Aveng generates about 63 percent of sales outside of South Africa. The company has business operations in Australasia and Asia as well as the rest of Africa.