Nervy markets gave contractor and engineer, United Group a hammering yesterday, despite the company turning in a 40% rise in interim earnings to record levels.
It seems it wasn't good enough, or up to analyst expectations and the shares plunged almost 25% by the close at $10.89, a low for more than a year and a loss of $3.60 on the day.
The company reported that first half net profit rose 45.7% to $51.48 million.
Underlying EBIT for the half was $87.3 million up 40% on last year's result of $62.3 million and reflects an increase in EBIT margin from 4.8% to 5.6% over the period. Normally that would be liked by analysts, but apparently it wasn't enough for some.
United even reaffirmed its annual guidance to achieve 15%- 20% growth in underlying net profit.
But investors wanted something more because that earnings 'guidance' is merely an objective that is repeated in each major earnings announcement or shareholder meeting. There is a qualifying phrase "on a sustainable basis" that goes with the range in the commentary each time.
The disappointment apparently stemmed largely from strike-induced delays in big contracts in Perth and Sydney.
These accounted for $12m in recognised losses from two "problem" contracts and the loss of the Dyno Nobel ammonium nitrate plant contract in Queensland in the Infrastructure division.
$590 million was sliced from the company's company's market capitalisation yesterday.
Some analysts said the result was around $10 million below their forecasts.
UGL's AGM was held last October 10 and the shares were trading around $19. The fall from there to yesterday is around 35%. For some reason the market has it 'under suspicion'.
And yet the numbers reported yesterday were still solid.
Operating revenue increased 20.3% to $1.57 billion. Interim dividend was increased 20% to 24c per share. Debt is up, but interest cover is up by more.
Cashflows look solid as well and have enabled the company to handle over $630 million in acquisitions in the US in the past year or so.
UGL bought US property management company Unicco Service Company for $477 million in July and paid $163 million for another US property company, Equis Corporation, in 2006.
United also provides engineering services to the booming resources sector and has ridden on a wave of infrastructure spending by governments in Australia and Asia.
"The first half results are strong," United chief executive Richard Leupen said in a statement accompanying the results.
"The extent of the revenue and earnings growth reflects the strength of the underlying businesses and the contribution from acquisitions."
The firm said that the three main drivers of its growth – increased infrastructure spending in Australia and Asia, a buoyant resources sector and a growing global property services business – all remained strong.
"United Group continues to benefit from the long term and continuous growth in outsourcing and that trend shows no sign of abating," the firm said.
The Sydney-based firm said it continued to assess other growth opportunities.
"We are confident that FY2008 will continue United Group's long history of sustained strong profit growth and we expect underlying NPAT growth of 15-20% plus the contribution from UGL Unicco to be achieved this year. In previous years, United Group's revenue and earnings have been weighted to the second half, and this will be the case this year due to the timing of some projects, gain shares, and the contribution from UGL Unicco," CEO, Richard Leupen said in a statement.
"United Group continues to benefit from the long term and continuous growth in outsourcing and that trend shows no sign of abating. United Group's three main growth drivers – increased spending in the Infrastructure sector in Australia and Asia, a buoyant Resources sector, and a growing global Property Services business – are expected to remain strong.
"We continue to assess other growth opportunities. The Australian market remains capacity constrained so we are working hard to consolidate our position locally and expand our delivery internationally.
"Across United Group we have strengthened our management depth, risk management and financial systems and ensured we have the right framework for growth. Our industrial relations are stable and we continue to attract and retain people at all levels of the Group.
"The $6.7 billion order book plus recurring revenue underpins our future. United Group remains in good shape for sustainable growth."
