CIG shares crash 57% in dra­matic fall from grace

Business Day - - FRONT PAGE - giuli­ Giuli­etta Talevi

A hor­rific third trad­ing up­date from one-time punter’s dar­ling, Con­sol­i­dated In­fra­struc­ture Group (CIG), wiped 57% off its share price on Tues­day, com­pound­ing last week’s 21% slide.

CIG’s mar­ket cap­i­tal­i­sa­tion, which peaked at more than R7bn in Oc­to­ber 2015, dropped to less than a 10th of that — to R687m — at Tues­day’s close of the mar­ket.

A day be­fore it was due to re­lease re­sults for the year to the end of Au­gust, CIG warned that head­line earn­ings would be “at least” 55% worse but did not “have rea­son­able cer­tainty to pro­vide a per­cent­age range”.

CIG’s man­age­ment has promised that the re­sults will be pub­lished by “no later” than Novem­ber 30.

Vu­nani Se­cu­ri­ties small-cap and medium-cap an­a­lyst An­thony Clark said “this is an ut­ter catas­tro­phe. I would say the mar­ket is go­ing to de­mand some­one’s head on a spike.

“The key is­sue here is why didn’t man­age­ment know what was go­ing on?”

Mar­ket talk is rife that the im­plo­sion will force a breach of CIG’s bank­ing covenants or push it to a rights of­fer.

At the half-year stage to the end of Fe­bru­ary, CIG had is­sued R960m in debt un­der a R1.5bn bond pro­gramme and in­di­cated then that fur­ther is­suance was on the cards.

The com­pany blames three large mul­ti­year en­gi­neer­ing con­tracts within Con­sol­i­dated Power Projects Group (Conco) that the board is now “in­ves­ti­gat­ing”. CIG said on Tues­day that while the con­tracts re­mained prof­itable, “the mar­gins pre­vi­ously recog­nised may re­sult in ad­just­ments” to its re­sults.

Part of the prob­lem is that Conco has not been re­im­bursed for scope ad­just­ments caused by cost over­runs and changes in en­gi­neer­ing and it has warned that ad­di­tional rev­enue for these ad­just­ments “may not be re­cov­ered in full”.

Wor­ry­ingly, these ap­pear to be self-in­flicted.

CIG has blamed “un­char­ac­ter­is­ti­cally poor ex­e­cu­tion” for the lower-than-ex­pected rev­enue, as well as mea­gre growth in its in­ter­na­tional busi­ness, po­lit­i­cal and civil un­rest on ex­ist­ing projects, de­lays in the award­ing of new projects and fewer op­por­tu­ni­ties in SA’s power sec­tor.

The ca­pit­u­la­tion is a dra­matic fall from grace for a com­pany once viewed as a play on African power in­fra­struc­ture spend, as well as a neat en­try into SA’s bur­geon­ing re­new­able en­ergy sec­tor. CIG listed on AltX in the 2007 in­fra­struc­ture boom, but back then it was called Build­worx and fo­cused mainly on heavy build­ing ma­te­rial sup­plies. It bought Conco, a fam­ily run power in­fra­struc­ture provider es­tab­lished in 1986, in 2008. Most re­cently, CIG spent R850m to buy smart me­ter provider Con­log, for which it is­sued 38.8-mil­lion new shares, un­der­writ­ten by In­vestec.

Clark said that the share price col­lapse in­di­cated that the mar­ket as­cribed no value to any of CIG’s di­vi­sions and that the com­pany was now worth only 80% of its Con­log pur­chase.

“I cer­tainly be­lieve it’s not go­ing bust,” he said.

CEO Raoul Gamsu said he could not com­ment un­til the re­sults were re­leased.

At end-Oc­to­ber, be­fore the trad­ing state­ments, which sparked a run on the stock, the five big­gest in­vestors in CIG were Pinecourt In­ter­na­tional, Old Mu­tual Global In­vestors, Nala Em­pow­er­ment In­vest­ment Com­pany, Pere­grine’s Sean Mel­nick and In­vestec As­set Man­age­ment.

At the in­terim stage to the end of Fe­bru­ary, CIG re­ported a 29% rise in rev­enue to R2.7bn and an 18.5% drop in head­line earn­ings to 111.1c. Its net cash was R548m and net-debt-to-eq­uity was 10.9%.

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