Consolidated infrastructure makes acquisition outside South Africa

With over 40% of its business derived from African markets, it was only a matter of time before infrastructure development specialist Consolidated Infrastructure Group (CIL) made its first acquisition outside South Africa.

The announcement last week of CIL’s acquisition of a 30,5% interest in Angola Environmental Serviços Limitada (AES) is still noteworthy, for two reasons.

First, the deal represents a shift into what appears to be very lucrative waste management services linked to the country’s booming oil sector.

To date CIL’s African business has been mainly generated by ConCo, a power transmission specialist.

Secondly, the deal shows an adventurous spirit within CIL willing to delve into a market that is tagged with higher risks but does arguably offer higher rewards than other countries on the continent.

In recent years SA corporates have tapped into Angola’s vibrant economy but some JSE-listed counters, such as diamond miner Trans Hex Group and engineering firm Rare Holdings, have endured trying times.

CIL, which has a large order book for its core power generation business in Africa, is certainly not betting the farm on Angola. It is paying roughly R130m for the strategic stake in AES, equivalent to around 8% of its market capitalisation.

CIL CEO Raoul Gamsu stresses the company bought into AES at a more than reasonable price multiple.

“The risks are mitigated in the purchase price. We think it’s a great investment, and one that should grow exponentially in the next three years. If things work out we are looking at some strong returns over the longer term.”

Gamsu adds that the Angolan oil industry hosts some of the biggest companies in the world. “AES has secured five- to seven-year contracts with some of these companies.”

CIL has also secured an option to increase its stake in AES at a later date.

Vunani Securities small-cap analyst Anthony Clark says the AES deal looks like “a very good one”, pointing out that the company had revenue of US$43m (R350m) and after-tax profits of $6,5m (R55m) in 2011.

Clark says the AES deal adds another growth platform to CIL in a high-growth sector with scope to extend out of Angola into other energy-producing countries.

He reckons AES might also offer an opportunity for CIL’s ConCo to supply its services to the oil and gas sector. He says ConCo has already operated in selected oil territories (such as Sudan) and has expertise in the sector.