THE INFLUENCES THEREOF ON VALUE CREATION FOR THE SHAREHOLDERS OF AVENG GROUP
The last 10 years financial data were analysed and evaluated to identify all the risk that has an influence on the share price. The market, industry and environment has been assessed and indicated where the risk areas lies. Growth in sales was only 1%, while cost of sales was up by 1.85%. This had a negative effect on the growth of the operating profit margin. Capital gains of Aveng’s shares were 26.98% as to the 20.60% of the market; however beta was calculated at 1.53, which indicate that the share has more risk than the market. Using the capital gains model is was established that the share is currently overvalued and that it will trade at 48.34 within five years at a 7% growth rate. Table of Contents
Table of Contents2
2Assessment of Financial Risk theories, the history of the risk situation and the effects there off on the share price4 2.1What is Financial Risk?4
2.2Ratio and Growth Analysis5
2.3Stand-Alone Risk Assessment6
2.4Market Risk Component7
2.5Capital Pricing Model and the Securities Market Line7
2.6Influence on Future Share Prices8
3Influence of External environment on future Risk of Return situation8 4The Management of some observed Risk Creating Factors and its influences on future Share Prices10 5Conclusion10
7.1Appendix 1 – Abbreviated Financial Statements12
7.2Appendix 2 - Comments on Ratio Analysis13
7.3Appendix 3 – Free Cash Flow Analysis14
7.4Appendix 4 – Ratio and Growth Analysis15
7.5Appendix 5 – Stand-Alone and Market Risk Calculations20 7.6Appendix 6 – Expected and Required Rates of Return21
7.7Appendix 7 – Future Share Price Calculations23
The Aveng Group is the largest infrastructure development company in South Africa with an established record and existence in key target geographies across the globe. With its wide exposure across the infrastructure value chain, the Aveng Group has the capacity to deliver multidisciplinary projects in construction, engineering, mining, water, transportation, rail, steel and manufacturing. The Aveng Group is a leading infrastructure development company and listed on the JSE since 1999. The Aveng Group consists of Aveng Limited and its subsidiaries.
They are very focus on the management of risk and have identified keys risk areas that needs to be focused on; competitive markers, challenging contract conditions, project delays, skills shortage, project execution risks, cost containment, entry into new markets, environmental impact, safety and health, reputational issues, transformation and change management, Avenge group Integrated Report (2011).
As a group they face the following risks:
• Strategic risks - internal and external, these risks can have serious financial losses for the group. • Business risks - that can be divided into two groups: those the group can control and external factors outside of control, e.g. country, exchange rates and commodity prices. • Project risk – decision to tender, tender risk review, project start-up, project execution and project close-out.
Project risk is one of the group’s biggest risks, as large customers are attempting to shift significant additional risk onto the contractor. Each project’s risk is evaluated by various reports and is supported with new risk software that enables a continuous learning system. The “Project Risk Framework” has been developed and includes best-practice modules, contract terms and conditions and risk tolerance levels. The tolerance levels are communicated to the line management on each project.
Assessment of Financial Risk theories, the history of the risk situation and the effects there off on the share price
1 What is Financial...