Our opinion on the current state of AEG

Aveng, once a prominent player in the construction sector, experienced a dramatic decline from trading at R69 a share in 2008 to becoming a penny stock. This downturn was driven by several critical factors, including reduced construction spending following the sub-prime crisis, a halt in government infrastructure projects post-2010 World Cup, and hefty fines from the competition commission totaling R1.4 billion. These challenges, compounded by significant losses on various construction contracts necessitating major write-downs and impairments, significantly impacted Aveng's financial health and market position.

In an effort to recover and stabilize, Aveng shifted its focus towards its more profitable operations, McConnell Dowell in Australia and the mining contractor Moolmans. This strategic pivot began to yield positive results, evidenced by the company's decision to undertake a fully underwritten rights issue in January 2021 to raise R300 million by issuing approximately 20 billion shares at 1.5c each, substantially diluting existing shareholders. A significant share consolidation followed in December 2021, which helped elevate the share price to around R28.

A notable development in Aveng's recovery journey was the sale of Trident Steel for R1.2 billion in May 2023, effectively rendering the company debt-free. For the six months ending December 2023, Aveng reported revenue of A$1.5 billion and headline earnings of A$11.3 million, marking a significant improvement in its financial performance. The decision to report financial results in Australian dollars reflects the company's revenue structure, with 91% of its income now sourced from Australian dollars.

The recent financial results highlight Aveng's resilience and strategic realignment, with revenue from continuing operations (excluding Trident Steel) growing by 39% to A$1.5 billion. Additionally, McConnell Dowell's accelerated repayment of its term debt facility further strengthens Aveng's balance sheet, with full settlement expected by June 2024.

Despite these positive developments, Aveng's share price has continued to face downward pressure. Investors are advised to exercise caution and monitor for a clear upward trend before considering investment, particularly looking for a break through the long-term downward trendline. This could signal a more robust recovery and potentially offer a more favorable entry point into the stock. Aveng's turnaround story, while still unfolding, suggests cautious optimism for the company's future, albeit within a highly volatile and competitive construction sector.