A brave, confident reaction from investors to the expected weak result from Brisbane-based resource and environmental testing group ALS (ALQ) yesterday.
The company also cut final its dividend (which was not unexpected, given the weak year the company had), and yet the shares jumped 8% to close at $7.96.
ALS shares were one of the best performed shares in the ASX 200 yesterday. The index ended down 1.1% at the close.
From early analyst reaction, the fact that ALS didn’t miss earnings guidance, as well as reveal new problems or write-downs, as other mining service companies have (think Worley Parsons and Forge Group in 2013 for example), seems to have accounted for much of the positive market reaction.
Investors also ignored the warning from directors that shareholders face the future prospect that more and more dividends will only be partly franked because of the continuing rise in offshore earnings.
ALQ 1Y – ALS shares up despite weaker profit, lower dividend
ALS reported an underlying net profit after tax (attributable to equity holders of the company, and excluding amortisation of acquired intangibles, restructuring and related costs, divestment losses and acquisition costs) of $171.9 million for the year ended 31 March 2014.
The result was 27.9% under the underlying result from continuing operations of the 2012-13 year.
Revenue of $1.503 billion was up 3.3% on 2013, so the company’s profit margins took a hammering during the year.
Net profit after tax excluding divestment losses and amortisation of intangibles was $163.1 million – within the guidance range provided to the market on February 27, directors said in yesterday’s statement.
Net after tax profit (including divestment losses and amortisation of intangibles) was $154.4 million.
The final 50% franked dividend was cut 7c to 20c a share, making for a total payout for the year of 39c a share, down from 48c in 2013 (both are partly franked).
Directors said yesterday, "The growing proportion of the Company’s earnings being sourced outside Australia will result in future dividends being franked at a lower percentage. Directors expect the interim dividend for FY2015 to be franked to no more than 15%. Subsequent dividends will be franked at the maximum level possible. Current indications are that the final dividend for FY2015 will be franked in the range of 30% to 40%."
Chairman Nerolie Withnall said in yesterday’s statement that despite the profit drop, ALS had performed better than most of its peers and the board was positive about future prospects (as they should be).
She said the company is focused on reducing costs and expects improved margins in its metallurgy and inspection businesses. The energy division is also expected to deliver considerable growth in fiscal 2015, while the industrial division has a pipeline of projects.
Mrs Withnall also noted that whilst it is disappointing to report a 28% downturn in underlying net profit for the year, ALS has performed better than almost all of its peers in the global testing and inspection market and the Board of Directors is positive about the company’s prospects in the medium and longer term.
“Geochemical sample flows in ALS Minerals were down by approximately one-third compared with FY2013, with Africa and the Americas the most affected.
“Contribution margins for the geochemical business remained in the target range as the business benefited from the cost flexibility provided by its hub and spoke model. All other divisions recorded revenue increases compared with FY2013. ALS Industrial returned solid organic revenue gains in both of its business lines, whilst ALS Life Sciences and ALS Energy benefited from the impact of acquisitions over the past twelve months,” Mrs Withnall said.
Commenting on the full year result, Managing Director Greg Kilmister said in yesterday’s statement the 2014 financial year "had been a challenging year for all of ALS’ businesses as the resources sector declined further into the cyclical downturn and all industries took a cautious approach to expenditure.
“Businesses across all sectors remained challenged; there was a consistent global focus by all market sectors on reducing costs; and the Australian dollar remained stubbornly strong compared to most expectations.
“However, we not only dealt with the reality of current markets, we made further significant progress toward our long-term strategy of building businesses around testing, and diversifying both our market sectors and geographies, most notably with the acquisition of oil and gas services provider Reservoir Group in August 2013.
“We also made substantial progress in repositioning our businesses from not just focusing on testing but to taking a more holistic view of data management and value, as well as packaging a more complete set of technical services to better meet the future needs and operating models of our clients in ever changing markets.”
