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Ausenco has work to do in second half
Shares in mining services company, Ausenco, were sold down heavily this week after the group provided an uninspiring business update and flagged disappointing earnings guidance. In the course of conducting a business review, Ausenco said that soft industry conditions would necessitate a number of overhead cost-saving programs in order to 'right size' all areas of its business to levels appropriate for the current operating environment.
These initiatives have resulted in extraordinary redundancy costs for Auscenco of $5 million, incurred largely in the second quarter of 2012-13. These changes and others initiated by management are expected to save $13 million in overhead costs in the second half of 2013 and between $20 million and $25 million annually from 2014 on.
The group also alluded to a number of contract-specific issues, and said that it was expecting net profit to be between $6 million and $7 million for the six months to June 30, 2013. Ausenco reports on a calendar year basis, and analysts at Bell Potter were expecting the company to generate a full-year net profit of $37.4 million in 2012-13.
This leaves it with considerable work to do in the second half, and while management is predicting that the company can still achieve a net profit of between $29 million and $41 million, the broad range of this guidance in itself suggests that a significant degree of uncertainty surrounds its estimates.
Analysts at Moelis certainly aren't buying management's sugar-coated outlook statement and they have downgraded earnings per share for 2013, 2014 and 2015 by 29 per cent, 47 per cent and 50 per cent respectively in addition to slapping a sell recommendation on the stock.
Auseco's shares fell by about 30 per cent from $2.15 to close at $1.49 on the day of the announcement. While this is a substantial fall, further downside seems likely and Moelis' 12 month price target of $1.20 looks closer to the mark.
Trevor Hoey