Aveng shares drop after it misses earnings forecasts

SA’s largest construction and engineering group, Aveng (JSE:AEG) shares fell 4.26% to R22.50 on Wednesday last week after the group posted a trading update with annual results that missed market expectations.

SA’s largest construction and engineering group, Aveng (JSE:AEG) shares fell 4.26% to R22.50 on Wednesday last week after the group posted a trading update with annual results that missed market expectations.

In a trading statement it expected headline earnings per share and adjusted earnings per share — excluding the impairment of goodwill — for the year ended June to be up to 10% lower than last year.

Due to the impairment of goodwill intangible assets of both Aveng Grinaker-LTA and the water business of Aveng Engineering‚ it also expected a basic loss per share of between 99.6c and 112.4c in the period‚ compared to earnings per share of 124.6c last year.

The construction and engineering group said last week, the impairment was non-cash in nature and was excluded from headline earnings per share.

But it said South Africa’s construction and manufacturing sectors remained under pressure due to slow infrastructure-related spend and lower mining activity resulting from weaker commodity prices‚ the damaging platinum mining strike and a subdued domestic steelsector.

It also said the Australian construction market was experiencing a slowdown in mining-related infrastructure spend‚ although there were still opportunities in transport and general infrastructure.

However‚ Aveng also said it anticipated a “substantial improvement” in net operating earnings before the effect of impairment of goodwill intangible assets.

The company said it was in a closed period and was not able to provide more detail than that issued in a stock exchange announcement. It said the full group results would be published on August 26.

On Tuesday‚ the South African Federation of Civil Engineering Contractors (Safcec) said that conditions in the South African civil construction industry had come under greater pressure in the first quarter of this year‚ following a contraction of 10% in real terms last year.

Safcec said that nominal turnover had contracted 12% quarter on quarter‚ but because of a particularly weak first quarter last year‚ turnover had increased 18% year on year in real terms.

However‚ this was offset by a “notable deterioration” in other indicators‚ which showed a “growing dissatisfaction” among civil contracting firms regarding the outlook for the industry‚ the employers’ body said.

Safcec also said the weakened economy — caused by the strike in the platinum mining industry and a contraction in the manufacturing sector — had raised fears that the government would not be able to deliver on its projected infrastructure expenditure programmes.

“Considering the fact that the increases in allocations over the next three years were already below construction cost inflationary expectations‚ this could have serious implications for the civil construction industry‚” it said.

Meanwhile‚ the Steel and Engineering Industries Federation of SA this week said that the decline in the Kagiso purchasing managers index for last month represented a further “strong deterioration” in business confidence.