well as its involvement in the renewable energy space.
The second-biggest profit contributor, at 32%, is CIG’s oil and gas operations. This is largely through its stake in Angola Environmental Services (AES) – a company that purifies the oil used as a lubricant when drilling oil wells. It collects, recycles and disposes of the waste and returns the clean oil to its client oil companies. There is massive growth potential for expanding this service to other countries where drilling for oil and gas takes place. Stricter environmental laws will also increase the importance of services like these.
Looking ahead, the company is actively looking into new opportunities in Nigeria, Angola, Mozambique, Ghana and the Middle East. A large number of its future power and electrification activities will be in the gas and renewable energy sector. CIG has also indicated that it will increase capacity in Angola, expanding AES.
Locally, CIG also has a building materials business that supplies products to developers and building contractors. While t his a r ea of t he business experienced a dip following the World Cup, through great management and renewed activity in road and housing development, it has recovered very well.
Recently, CIG acquired a business specialising in the electrif ication of railways, which has very attractive growth potential in both SA and on the rest of the continent.
We continue to be encouraged by the performance of CIG – in its most recent f i nancial year, revenue has grown by 29%, profit increased by 50%, headline earnings per share is up 36% and, importantly for a company in this space, the order book grew by 36%. Furthermore, CIG has seen increasing spend from local municipalities in power and electrification, in their efforts to reduce the country’s estimated power and electricity backlog of nearly R40bn.
Another attractive quality of CIG is its relatively conservative management – the working capital is very well managed, which is important in a big project related sector such as this. The management team has also recently increased its stake in the business to 20%, which is always encouraging for investors.
On a forward price-to-earnings (P/E) ratio of 11.5, CIG trades at a premium to the local building and construction companies, however through its business mix and geographical diversification it should be compared to an international peer group, which currently trades on an average forward P/E of 18. We are not expecting any dividends in the short to medium term, but the company’s growth potential more than compensates for this.