If it wasn’t for the fact that the mining services sector is facing weakening conditions, you’d be entitled to label UGL Ltd a bit of a serial downgrader and under performer given its form over the past five years. If anything there seems to be the impression that the company has downgraded earnings more than it has upgraded them in that time.
That may be a wrong impression, but who’s going to argue after yesterday’s effort from the company (remember that it revealed plans to split its business in late March – which saw the shares enjoy a small spike). The shares jumped 12% to $10.58 on the day of the announcement of the planned dividing of the company.
Then came the second downgrade this year for the company yesterday.
Yesterday the shares slumped 17% on the back of a warning that earnings could be a third or more lower in the year to June. They ended down at $7.94 – taking the loss since the March 27 split statement to 21%.
UGL shares slammed for second downgrade of 2013
UGL wasn’t alone yesterday: Australia’s biggest construction company and contract miner, Leighton Holdings lost 4% and mining service company Emeco Holdings plunged 10.1%.
UGL blamed the slowdown in mining investment and poor project performance for its second downgrade this year. UGL said it now expects to report net profit of between $90 million and $100 million, compared to its previously revised guidance of between $150 million and $160 million given at its half-year results in February.
“Ongoing uncertainty and volatility in commodity markets have driven a continued slowdown of capital investment in the resources and infrastructure sectors with further delays of major projects impacting revenues in the engineering business,’’ CEO Richard Leupen said in a statement to the ASX.
"Notwithstanding, UGL has commenced a program to reduce gearing over the next 12 to 18 months. Initiatives include the restriction of expansionary capital expenditure, reduced working capital requirements through improved management of debtor days and divestment of non-core property.
‘‘Additionally, the cost management programmes of the major miners have led to scope reductions and cancellations across UGL’s operations and maintenance business."
UGL also indicated in yesterday’s statement that it is moving towards splitting its global property business, DTZ, from the rest of the group.
‘‘The board has noted that a demerger appears more likely than other options to optimise value for UGL shareholders,’’ it said.
UGL said its property business provided a bright spot and was expected to record its eleventh straight year of earnings, and would come close to accounting for half of the group’s earnings within the next few years.
UGL Earnings guidance and market outlook
