UGL surprised investors yesterday by choosing to reveal a capital return to shareholders instead of a final dividend after completing the sale of its DTZ property arm later this year.
Despite underlying net profits rising 22% to $111.7 million the news of the buyback confused investors for a while and UGL shares fell by around 3% to a day’s low of $6.56 in early trading, before making their way back to end the day up 0.3% at $6.81.
Even though the 22% rise in underlying net profit was impressive on paper, investors though it was weaker than forecast, which it was with analysts forecasting a consensus figure of around $120 million.
"Earnings were impacted by reduced freight locomotive sales and resources project opportunities along with margin pressure attributable to cost saving measures implemented by mining sector clients," the company said yesterday.
After a tough year, in which the company omitted its interim dividend and cutting full year earnings forecasts because of ongoing weaknesses in its core engineering business, yesterday’s news of the final dividend being dropped as well, had to be offset by good news somewhere else.
Hence the news of the buyback, the timing of which will be linked to the successful sale of the DTZ business.
UGL 1Y – UGL replaces dividend with buyback, surprises the market
UGL said the sale of property arm DTZ, which was sold to US private equity group TPG for $1.2 billion, is due to be done by late this year.
UGL plans to use the proceeds of the DTZ sale to return between $400 million and $500 million to shareholders after paying down some $567 million of net debt.
"The board has determined not to pay a final dividend for fiscal 2014 but rather to implement an effective capital management plan at close of the DTZ sale," UGL said.
That means there could be good news on this front at the AGM, or at the interim in early February next year.
Long time UGL CEO Richard Leupen won’t be the one to bring shareholders the good news if the capital return announcement doesn’t come until very late this year or in early 2015.
He’s leaving UGL in November and will be replaced by Ross Taylor, who currently runs privately held engineering group Tenix.
And, UGL board director Kate Spargo will take over from UGL chairman Trevor Rowe at the company’s annual general meeting in October.
