Raoul Gamsu. Picture: RUSSELL ROBERTS
Raoul Gamsu. Picture: RUSSELL ROBERTS

A horrific third trading update from one-time punter’s darling, Consolidated Infrastructure Group (CIG), wiped 57% off its share price on Tuesday, compounding last week’s 21% slide.

CIG’s market capitalisation, which peaked at more than R7bn in October 2015, dropped to less than a 10th of that — to R687m — at Tuesday’s close of the market.

A day before it was due to release results for the year to the end of August, CIG warned that headline earnings would be "at least" 55% worse but did not "have reasonable certainty to provide a percentage range".

CIG’s management has promised that the results will be published by "no later" than November 30.

Vunani Securities small-cap and medium-cap analyst Anthony Clark said "this is an utter catastrophe. I would say the market is going to demand someone’s head on a spike.

"The key issue here is why didn’t management know what was going on?"

Market talk is rife that the implosion will force a breach of CIG’s banking covenants or push it to a rights offer.

At the half-year stage to the end of February, CIG had issued R960m in debt under a R1.5bn bond programme and indicated then that further issuance was on the cards.

The company blames three large multiyear engineering contracts within Consolidated Power Projects Group (Conco) that the board is now "investigating". CIG said on Tuesday that while the contracts remained profitable "the margins previously recognised may result in adjustments" to its results.

Part of the problem is that Conco has not been reimbursed for scope adjustments caused by cost overruns and changes in engineering and it has warned that additional revenue for these adjustments "may not be recovered in full".

Worryingly, these appear to be self-inflicted.

CIG has blamed "uncharacteristically poor execution" for the lower-than-expected revenue, as well as meagre growth in its international business, political and civil unrest on existing projects, delays in the awarding of new projects and fewer opportunities in SA’s power sector.

The capitulation is a dramatic fall from grace for a company once viewed as a play on African power infrastructure spend, as well as a neat entry into SA’s burgeoning renewable energy sector. CIG listed on AltX in the 2007 infrastructure boom, but back then it was called Buildworx and focused mainly on heavy building material supplies. It bought Conco, a family run power infrastructure provider established in 1986, in 2008. Most recently, CIG spent R850m to buy smart meter provider Conlog, for which it issued 38.8-million new shares, underwritten by Investec.

Clark said that the share price collapse indicated that the market ascribed no value to any of CIG’s divisions and that the company was now worth only 80% of its Conlog purchase.

"I certainly believe it’s not going bust," he said.

CEO Raoul Gamsu said he could not comment until the results were released.

At end-October, before the trading statements, which sparked a run on the stock, the five biggest investors in CIG were Pinecourt International, Old Mutual Global Investors, Nala Empowerment Investment Company, Peregrine’s Sean Melnick and Investec Asset Management.

At the interim stage to the end of February, CIG reported a 29% rise in revenue to R2.7bn and an 18.5% drop in headline earnings to 111.1c. Its net cash was R548m and net-debt-to-equity was 10.9%.


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