Aveng sells maker of railway sleepers for a song

Construction group Aveng has sold its railway sleeper maker, Infraset, for R200m — much less than its valuation.

Marc Ter Mors, an analyst at SBG Securities, said the fact that Aveng was willing to sell it for way below its adjusted valuation shows the difficulty in the construction sector.

The sector is going through an extremely difficult period, with Basil Read going into business rescue and Group Five being technically insolvent.

The problems in the local construction sector have prompted Aveng to transition into an international infrastructure and resources business. It is disposing of noncore assets such as Infraset, which will be taken over by Colossal, comprising Isongo Investments and Colossal Africa Infrastructure.

Colossal Africa Infrastructure has interests in the materials supply sector. Isongo provides specialised services and products for the railway industry.

The sale of the business to Colossal follows Infraset’s R52m loss for the year to June 2018. Aveng reduced its net asset value from R491m to R365m a year ago.

SALE OF COMPANY FOR MUCH LESS THAN VALUATION SHOWS DIFFICULTY IN THE CONSTRUCTION SECTOR, ANALYST SAYS

Infraset reported a 13% fall in revenue to R644m as demand for railway sleepers and concrete paving products fell sharply. The group said the drop in revenue reflects weak operating conditions in the infrastructure, rail, underground mining and water sectors served by Aveng DFC, Aveng Duraset and Aveng Rail. These companies are also up for sale.

The closure or restructuring of Infraset’s unprofitable factories in Kuils River, Pietermaritzburg and Wadeville resulted in short-term costs, which negatively affected its performance and increased the operating loss.

Aveng said in its 2018 annual report: “These measures, combined with productivity improvements at core plants, will reduce the cost base in 2019. A new factory in KwaZulu-Natal will increase capacity in the roof tile market, where demand remains buoyant.”