Early in July, when Aveng was reviewed in this column on available investment data at the time, we concluded that the share price, then at R21,45, was undervalued.

The conclusion was that it should have been between R24,85 and R30. Technical analysis then pointed to a share price moving above R30. It has already reached R32.

Between the July review and now, results for the year ended June 30 were published (September 8). These results have allowed more than enough time to look again at the company and its potential. This kind of re-review is a must for investors tracking performance. That's why I revisited Foschini yesterday, following the publication of its latest interims.

There was something of a pause between Aveng's year-end results and today's review, mainly because I was waiting for progress on the announcement by Holcim that it wished to sell 85% of its share in its South African business in an empowerment deal.

Aveng holds 46% of Holcim (SA). It has a pre-emptive right to buy the remaining 54% and, clearly, terms and conditions of such a transaction have to be fair for Aveng's shareholders.

The possible deal is still being discussed and shares are trading under a cautionary.

Because it is a minority shareholder in Holcim (SA), its results are equity-accounted - its share of earnings (included in income from associates in the income statement) is part of Aveng's overall earnings but important figures such as turnover are not included in Aveng's consolidated income statement.

Its revenue in the financial year 2006 amounted to R4,5bn.

Total revenue for the Aveng group was R16bn - and this emphasises how carefully the proposed empowerment transaction has to be considered.

On prospects, the directors wrote: "With buoyant activity levels across all operational areas evident in the two-year construction order book of R11,3bn, Aveng is well placed to continue building sustainable value for all stakeholders.

"Earnings before interest and tax margins are moving up and will move closer to the medium-term target of 6% during the next year."

This comment was expected.

It's worth, though, looking more closely at the earnings before interest target - it's always a delight when company management recognises this key component in appraising its management of assets.

It's especially so when you consider the high level of assets a construction and engineering company has to hold, including work in progress. The timing of revenues is linked to progress and the company has to finance the inputs between stages. The asset "work in progress" is, therefore, realised as cash revenues at these stages.

Return on assets for this kind of company is bound to be lower than return on assets for a retailer such as Foschini, which turns its base inventory over several times a year. Pick 'n Pay sells a substantial part of inventory before it even pays for it.

In the 2005 financial year, Aveng's earnings before interest and tax as a percentage of turnover was 3,2%. The 2006 figure of 4,9% was, therefore, 1,7% higher. This is a striking improvement of 53%.

It's worth considering the improvement in return on assets and the flow through to return on equity. Observant readers will note that 2005 figures in this review are not the same as those in the July review as there was a blip in the data input in the model. Correctly stated, the 2005 return of assets was 5,14%, significantly lower than the 2006 figure of 7,86%.

The ratio of assets to equity in 2005 was 3,05 compared with the 2006 year-end ratio of 2,84.

These ratios then filter through to the return on equity, showing 22,33% in 2006 compared with less than 16% in 2005. Reaching the target of a return on equity of more than 25% is realistic.

The 2006 diluted headline earnings per share were 144,9c, a rise of 74% on the 2005 figure.

The Forecast Factory consensus, recommending "buy", is 223,80c, an improvement of more than 50%.

And thereafter, experts see earnings growth slowing to about 16%. Perhaps they're conservative on the longer term but, even so, the longer-term outlook is more than healthy enough.

Let's stick to 50% growth in headline earnings in 2007. Assume headline earnings per share would then be 218c. On the current share price of R32, the forward earnings yield is 6,8%, the forward price-earnings ratio is almost 15 and the projected dividend yield is 2%. These ratings confirm the market's view of an excellent second current half.

The share price would probably be even higher if not for the impending cautionary on the empowerment transaction. At worst, however, the empowerment deal may shave a few cents off earnings per share.

The share price count to R37 could well be reached before the end of this financial year, but the rise looks likely to be jumpy.

Business Day