Can government spend breathe life into Aveng
The construction industry in S o ut h Af r i c a h a s b e e n depressed for almost 10 years a n d c o nt i n u e d to face challenges in 2014, a year fraught with labour unrest, substantial delays on some of the country’s major construction projects and setbacks in the economy.
This has put immense pressure on construction companies, whose share prices have dropped to levels last tested at the turn of the century.
Aveng Li mite d , t he hold i n g company for a group of companies operating primarily in the construction, engineering and mining industries, is no exception.
Through its subsidiaries, the group provides a variety of services in industries such as mining, steel processing, construction, property development and civil engineering. Not surprisingly, Aveng has been in a six-year bear trend.
When the company announced its results for the year to June earlier this month, the mood remained depressed, with Aveng hinting at the possibility of more restructuring should things not look up soon.
One thing that could change the fortune of the industry is government commitment to infrastructure spend. With construction a sizeable economic contributor and employment provider in SA, it is in the government’s interest to revive the industry. Government is l ook i ng t o s pend R813bn on infrastructure over the next three years – some of which might go through Aveng’s books. The roll-out has been sluggish so far, but there seems to be a growing interest in construction shares. This could mean the end of Aveng’s bearish road.
Another potential positive could be the cyclical nature of the construction industry. After a major boost in 2010 (when SA hosted the Fifa World Cup), the industry experienced a period of slowdown owing to the global economic downturn. The cycle is, however, starting to turn. According to a recent report by TechNavio – a leading technology research and advisory company with global coverage – and many other construction reports, the industry is expected to regain the momentum, potentially driven by government’s National Infrastructure Plan.
Announcing its annual results, Aveng reported a full-year net operating loss of R288m to June 2015. Earlier, it cited labour disruptions and an industry-wide slump at home as reasons for the decline. It also announced a loss per share of R11.48 (compared with R10.19 the previous year), and headline loss per share of R14.43 (compared with R11.25). Key support is at R4.10/share, and the oversold relative strength index (RSI) is likely to trigger upside.
My take: Aveng has breached the third and final resistance trendline of its major bear trend (a bullish sign) and has fallen to levels last tested in 1999. A recovery above R7.10/share would be a good level to go as long as Aveng could trade to the R10.15/share resistance level and possibly advance to t he R14.20/share mark. However, the RSI must follow suit by breaching its major resistance trendline. Distinct upside to R25/share could be seen once Aveng overcomes the R14.25/ share mark.
Aveng could drop further to its all-time low at R3.50/share upon a reversal below R4.10/ share.