The market in Ausdrill (ASL) shares wasn’t pretty yesterday – in fact it would be correct to describe it as rather battered – down more than 28% at the close, after an earnings guidance update that was worse than even the most pessimistic pessimists have figured.
The shares plunged 39c to 98.5c yesterday after it confirmed that full year profit would fall heavily due to lower spending by the mining industry. Close to $120 million was cut from the company’s value yesterday.
Coming after just one quarter and a bit of trading in the new financial year, the downgrade was shocking. But there was a glimmer of light for investors in the company’s update.
The company said it expects to post a net profit of as low as $35 million (and as high as $45 million) in the year to June 2014, well short of the $90.4 million profit earned last financial year.
Revenue is now expected to drop to $825-925 million, which is far below the $1,129 million booked a year earlier.
The company described trading conditions as "challenging" but in contrast to others in the same sector, said it expects an upturn to commence in early 2014.
"The first half result will be lower than the second half due to the effect of contracts ceasing with the impact of any new work not taking effect until 2014. The forecast result also excludes the effects of significant items, if any, as well as the impact of any fluctuation in the value of the Australian dollar. The business remains comfortably within its debt covenants," Ausdrill said in its update.
"Ausdrill expects that the focus by the mining industry on deferring all non-essential expenditure including capital works, exploration programmes and non-critical maintenance will taper in the near future and that surplus capacity that exists in the mining services industry will start to diminish in FY2015.
"Ausdrill remains in a sound financial position. It considers that the forecast result is not acceptable even in these challenging times and it continuing to work on plans and strategies to achieve the returns necessary for a Company of its size. In addition the deleveraging plans being pursued will ensure that the Group will be well placed in the mining services sector to benefit from any upturn and opportunities that arise in the mining industry," the company said.
Ausdrill is the first of the mining services majors to see some light at the end of the current very dark tunnel. Others such as Boart Longyear (BLY) and Imdex (IMD) have been much more cautious in pointing to a recovery.
The downgrade is likely to be followed by others in the next six weeks. One company attracting attention is ALS (The old Campbell Brothers), the giant testing group which is due to report its interim results shortly.
Ausdrill cut its 2013-14 dividend 17% to 12c a share with an interim of 6.5c and a final of 5.5c. If it earns $35 to $45 million, it could still pay a small dividend for the year to June 30, but that won’t be known until early 2014.
Meanwhile, Forge Group (FGE), which earlier in the week asked trading in its shares to be halted because of problems in some of its contracts, now won’t report until Monday.
Forge has asked for its shares to be suspended until Monday while it gets more information on the financial impact of problems with its gas turbine power projects in Queensland and Western Australia.
Forge was to report on Wednesday. Forge looks like it is building up to a big sell-off on Monday, if it can report by then, judging by the damage done to Ausdrill shares yesterday.
