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A string of earnings reports from the biggest players in the construction industry showed margins are still dropping and the building depression in South Africa hasn’t eased its hold on the counter. Aveng’s 35% drop in headline earnings was especially disappointing, if only because the stock was as recently as year-end 2010 seen as quite defensive relative to the rest of its sector.
At least Aveng’s drop isn’t as dramatic as Murray & Roberts’s headline earnings plunge from 124c in the six months to end-December from a profit of 200c/share, and is up there with Group Five’s 20% drop. Yet it’s worrying to note the group burned through R2bn in cash since June 2010. Aveng’s net cash fell from R7,5bn to R5,4bn and excess cash halved to R1,4bn, due to a drop in operating profit and working capital.
The rest of its cash, still a sizeable amount, will be used as a parachute until things start looking up again. CEO Roger Jardine says some will be used to finance any large projects that may come on stream during the year. Jardine says the group is also interested in making a few key acquisitions in the water infrastruture sector to take advantage of Government’s billion-rand infrastructure Budget. That R800bn carrot from the State and the potholes and water cut-offs are what has kept many an investor’s eye on the industry’s performance and, in particular, its trough.
However, for now Jardine sounds like most other CEOs lamenting the conditions in the industry: heightened competition and consequently lower profitability. Despite the sector-wide slump, Aveng is still bragging about an order book of R32bn, up marginally from R31,1bn in June 2010. This is a cyclical industry and even though the depression has revealed some emperors to be without clothes, Aveng surely isn’t one of them.
At least Aveng’s drop isn’t as dramatic as Murray & Roberts’s headline earnings plunge from 124c in the six months to end-December from a profit of 200c/share, and is up there with Group Five’s 20% drop. Yet it’s worrying to note the group burned through R2bn in cash since June 2010. Aveng’s net cash fell from R7,5bn to R5,4bn and excess cash halved to R1,4bn, due to a drop in operating profit and working capital.
The rest of its cash, still a sizeable amount, will be used as a parachute until things start looking up again. CEO Roger Jardine says some will be used to finance any large projects that may come on stream during the year. Jardine says the group is also interested in making a few key acquisitions in the water infrastruture sector to take advantage of Government’s billion-rand infrastructure Budget. That R800bn carrot from the State and the potholes and water cut-offs are what has kept many an investor’s eye on the industry’s performance and, in particular, its trough.
However, for now Jardine sounds like most other CEOs lamenting the conditions in the industry: heightened competition and consequently lower profitability. Despite the sector-wide slump, Aveng is still bragging about an order book of R32bn, up marginally from R31,1bn in June 2010. This is a cyclical industry and even though the depression has revealed some emperors to be without clothes, Aveng surely isn’t one of them.
