Transfield’s upgrade shows there’s a bit of earnings go forward from the service sector companies which have been hammered by the downturn in resources, especially iron ore, copper, gold, coal and now oil.
It was joined yesterday by service group and engineering, Downer EDI (DOW). It’s shareholders were told at the AGM yesterday the company it now expects to lift its net profit to $210 million in the year ahead.
This is up from the $205 million forecast at the time of the release of its year-to-June net earnings, which showed a net profit up 5.9% at $216 million for the 2013-14 financial year.
The recent $300 million purchase of Tenix coupled with contract wins is behind the higher earnings forecast, even if it is tiny.
“Following the acquisition of Tenix, and despite the subdued outlook for a number of our end markets, we are increasing our target statutory net profit after tax for the full year to $210 million,” shareholders were told at yesterday’s annual meeting.
"The existing business continues to perform in line with previous guidance whilst the incremental increase from the Tenix acquisition reflects eight months of trading net of interest expense, transaction costs, amortisation and taxation."
Downer shares rose 1% to end at $4.71.
DOW YTD – Downer ups profit target
The higher forecast reflects reflect eight months trading from the recently acquired Tenix business.
Downer also plans to continue cutting operating costs and improving efficiencies in its mining division as weaker commodity prices, particularly coal and iron ore, weigh on the sector.
“Underlying mining commodity markets are currently very difficult for a number of our major customers,” Chief executive Grant Fenn told the AGM. he said the short term impact on service companies like Downer was hard to predict.
But, he said, over the longer term, this pressure would drive demand for the company’s services as companies look for more efficient service delivery.
Downer suffered a 22 per cent fall in revenue over the previous financial year but recently won a four-year $500 million contract with iron ore project Roy Hill and a $170 million contract at the Chevron-operated Gorgon gas project, both in Western Australia.
It has also picked up a $70 million contract with Crocodile Gold Corporation and a $200 million contract extension at the Commodore coal mine in Queensland.
