Johannesburg - The market has cheered the earnings revision of JSE-listed construction group Aveng - but analysts remain cautious about the industry's prospects.
The company - which makes up 0.37% of the JSE and is valued at R14.92bn - said on Thursday it had revised its earnings forecast. This was because its headline earnings per share were now expected to decline by between 9% to 14% for year to end-June, rather than the 20% to 25% decline predicted at the end of June.
The earnings per share forecast was also revised to a 7% to 12% fall, from an initial 15% to 20% drop.
Two analysts, who asked to remain unnamed, told Fin24.com the revision was in line with their initial expectations.
"Management has cited a better-than-expected performance from the construction and engineering cluster for the improvement in guidance," an analyst said.
The second, however, still had doubts about the group's steel operations, after Aveng initially said the expected decline was a result of the significant fall in price and demand for steel, among other things.
"The question is whether the group's steel operations will be worse than expected and the other operations - like construction and engineering - better than anticipated. I still want to know how the steel division performed," he said.
'Scope for disappointment'
He raised other concerns about the revised trading update, asking whether management had proper "controls in place" as it should have had an inkling of the changed picture in June, because of the close time frame between the two updates.
Vestact market expert Paul Theron told Fin24.com the one concern with holding construction shares was that investors were doing so in a high turnover, low-margin and risky business. "There's scope for disappointment lurking in the background," he said.
"It's like that nursery rhyme - when it's good, it's really, really good; and when it's bad, it's horrid."
He also said people get "suckered in" to long cycles. "Their cycles are so long that when tough times come, people don't remember when the last tough times were. They get a rude awakening every five to seven years."
However, another unnamed analyst said the sector is producing better results than other industries.
On Thursday, the Aveng share price reacted to the news by gaining more than 4% after the revision. However, it eventually closed 70c (1.89%) higher, at 3 770c.
A consensus of six brokers maintains a "hold" status on the share, as they see future growth potential, despite an immediate fall in earnings.
For the next year, the brokers expect earnings per share to increase to 530c, and the following year to 605c, the consensus showed.
- Fin24.com