FY25 proved to be a tough year for Aveng. It made a strong recovery after the collapse of the BLNG project in FY23 but battled through projects being scaled back, hyper-escalation and zero OPM on certain pre-Covid projects. However, losses could have been worse if not for Aveng’s project risk management through the inclusion of alliance contracts, limiting losses.
Unfortunately, the tough FY24 is expected to spill over into FY25, with a few zero-OPM pre-Covid projects remaining and lower building activity down under expected to add top-line pressure. A further frustration is that the recovery of the Mining segment is largely dependent on Transnet, which is not expected to turnaround its rail and port operations within FY25.
The sale of Moolmans, however, could allow management to focus on its core business while returning capital to shareholders through shares, cash or a combination thereof. In our view, this is much needed as McConnell Dowell’s bread and butter – technical transport infrastructure projects – has dried up.
Positively, though, the reduction in transport projects was accompanied by a large increase in energy projects, as well as an uptick in water infrastructure. Although McConnell Dowell has experience in water and pumped hydro, we are sceptical of its ability to obtain sufficient energy work to replace transport infrastructure. In its favour is the increase in technical fossil fuel energy projects as the Australian government pares back its expectations of renewable energy.
We remain cautiously optimistic about Aveng and aware that FY25 will be a tough year for the contractor. However, all the ‘bad’ projects are expected to be completed in FY25 and work in Southeast Asia is accelerating. If Aveng is able to break into the energy space, the order book could recover and so too margins.