From Johannesburg to Melbourne: Aveng's Shift to International Expansion

Avengers Assemble ✊—a saying commonly used among the investor community when there’s news about Aveng, a company that once traded at less than R0.05 due to the deterioration of the South African construction industry. The company has garnered significant attention, with close to 35,000 investors on the EasyEquities platform.

In 2021, the company underwent a 500-for-1 share consolidation, boosting the price to R28. In 2023, it sold Trident Steel for R1.2 billion, eliminating its debt. Currently, it trades close to R10 per share.

What’s the latest with the company?

Recently, Aveng announced plans to split its Australian and South African operations into two independent entities. McConnell Dowell, its Australian subsidiary, is set to become an independent company and is likely to be listed on the ASX and possibly the JSE.

Aveng, the construction and engineering company, will retain ownership of Moolmans, its South African contract mining business, while exploring alternative ownership structures, including broad-based black economic empowerment options. This strategic move reflects Aveng's intention to realign its focus away from the African market, further emphasised by its shift in financial reporting currency from the rand to the Australian dollar.

The demerger is part of Aveng's broader strategy to capitalise on the strong growth momentum in its Australasian operations, which have been a key driver of the group’s financial performance. McConnell Dowell, operating primarily in Australia and New Zealand, contributed 78% of Aveng’s total revenue, making most projects profitable. In contrast, Moolmans operates in a challenging South African market, where infrastructure and logistics issues continue to impact operations. Despite these challenges, Moolmans reported an increase in revenue and positive operating earnings, though the company is actively seeking ways to optimise its business model, including potential new ownership structures.

Aveng's revenue rose 27% to A$3.1 billion. Operating earnings improved to A$34.5 million from a loss of A$86.8 million. Headline earnings increased to A$38 million from a loss of A$77.7 million, and net earnings reached A$25.7 million, up from a loss of A$91.8 million. The company's strategy of relocating its executive leadership to Australia and reorganising its operations into three focused segments - infrastructure, building, and mining - could potentially position it well for steady, profitable growth. The new structure, designed to be lean and agile, allows Aveng to fully leverage its executive capacity and operational support across its global operations.

While the Australasian market has been robust, Aveng continues to face challenges, including the impact of hyper-escalation on project costs in Australia. However, the company has adopted strategies to mitigate these risks, focusing on alliance model projects that offer cost protection. Despite the shift in its management epicentre to Australia, Aveng remains listed on the JSE, with governance and control continuing in South Africa. As the company moves forward with its demerger and internationalisation strategy, it aims to unlock the long-term growth potential of both McConnell Dowell and Moolmans by allowing each entity to pursue separate growth strategies aligned with their distinct markets.

Conclusion

Aveng's decision to demerge its Australian and South African operations presents both opportunities and uncertainties for investors. The move could unlock value by allowing each entity to focus on its core competencies, with McConnell Dowell potentially benefiting from increased investor attention in the Australasian market. However, the demerger also introduces risks, particularly for Moolmans, which operates in the challenging South African environment, raising concerns about infrastructure, logistics, and broader economic factors.

Investors should weigh the potential benefits and risks of Aveng's strategic move, considering the company's rationale and track record with such transactions. Monitoring the post-demerger performance of both entities will be crucial in assessing the success of this realignment.

Investing in dividend-paying shares could offer numerous financial benefits, such as passive income. Additionally, several of these shares can also serve as valuable collateral for a loan on EasyEquities.

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