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From the Eureka Report:

Update on Forge Group (FGE)

It’s little wonder Forge Group (FGE) lost sight of two critical projects that cost shareholders dearly. The phone number for its media contact on the press release went through to St John Ambulance.

The engineering contractor can’t get a phone number right even as it tries to reassure investors that it is on top of the crisis-stricken Diamantina and Angelas power station construction projects, which are forcing the group to take a $127 million profit write-down for 2013-14.

Perhaps the telephone number was deliberate. After all, shareholders were left haemorrhaging, with the stock suffering its worst pounding on record as it plunged to its lowest level since the global financial crisis.

The stock was suspended from trade at the start of November and it resumed trading this morning, with an 80%-plus freefall to around 76 cents – its lowest since 2009.

The engineering contractor took nearly a month to hammer out a bailout financing deal with Australia and New Zealand Banking Group (ANZ), which will see shareholders massively diluted through a warrant issue that would give the lender the right to exchange the warrant for shares at just 1 cent a pop.

It’s hard to fathom that just two problem contracts from its very large order book can do this much damage. The group is now expecting to post an earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $85 million to $90 million for 2013-14.

Excluding the power station construction projects, pro-forma EBITDA should range between $45 million to $50 million, according to management.

The pro-forma EBITDA is still about half of consensus estimates forecasts and there are still many unanswered questions that will dog the stock.

Management has yet to return calls, and I recommend existing shareholders to hang on until I can get further clarification to form a view on whether the worst is over (it seldom is when a material project blows up).

In the meantime, I am downgrading the stock to “neutral” from “outperform”.