Aveng eyes M&A, JVs to ride out slump

2012-03-14 17:00

Johannesburg - Aveng could spend up to $400m on acquisitions and joint ventures, its chief executive said on Wednesday, as South Africa's No 1 builder looks to ride out an industry-wide slump at home.

Aveng, which reported a 31% drop in first-half earnings, is sitting on a R5bn war chest.

"We could use R2-3bn for growth. It can be either through JVs or acquisitions," CEO Roger Jardine told Reuters in an interview.

The company said it sees growth opportunities in renewable energy and power projects.

"It's a good idea to use the money on value-enhancing acquisitions or JVs, rather than allow it to sit on the balance sheet, but it is unlikely that management will spend it all at once," said Peter Steyn, an analyst at Macquarie First South.

The South African construction industry has been struggling in recent times as the government delays rolling out its more than $100bn infrastructure investment package.

But Aveng has fared better than rivals such as Murray & Roberts, thanks to its geographical diversity that spans Australia, Asia and the Middle East.

The company reported a 31% decline to 67.5 cents in diluted headline earnings per share in the six months through December, hit by writedowns on contracts in Australia and poor demand at home.

Aveng's Queensland Curtis liquid natural gas project was delayed due to regulatory approvals and heavy rains, forcing it make provision to cover the financial impact of the project.

"The project is still in an early phase of completion and therefore continues to pose a material risk," the company said, adding it did not expect further impairments on its Adelaide desalination project, which is also in Australia.

Aveng said its two-year order book rose by 24% to R46bn in the past six months, underpinned by strong demand from the mining and energy sectors in Australia.

Shares in the company, which are up about 11% so far this year, gained 2.5% to R38.10 by 12:39 GMT, outpacing a 1% gain in the JSE All Share [JSE:J203] index.