Investors dump Ausdrill shares after hefty profit downgrade
Shares in contract driller and miner Ausdrill were heavily sold on Thursday after a large profit downgrade spooked investors and soured sentiment towards the sector.
Ausdrill shares closed down 28.7 per cent at 98¢ in heavy trading. More than 20.3 million shares changed hands, several times the usual daily volume.
Boart Longyear fell 2¢ to a record low of 38¢ but Imdex recovered from earlier weakness to close up 1¢ at 71¢, benefiting from its exposure to the oil sector.
Earlier in the week trading in Ausdrill's shares was suspended as it finalised a downward earnings revision. Before the market opened on Thursday Ausdrill warned that net profit in the year to next June would fall to $35 million to $45 million - well below the $90.4 million earned last financial year.
Revenue is expected to fall between $825 million and $925 million, well short of the $1.13 billion booked last year. Ausdrill blamed "challenging market conditions" for the downgrade, which will remain soft until the start of the new year, when a recovery in selected markets will occur.
In contract mining, several projects have reduced waste volumes. Work has stopped at three mines in west Africa, and blast and drilling services has stopped production at two others.
Similarly, exploration activity remains subdued with "no signs of a recovery in the near term". No rise in equipment hire is expected for a while either, along with lower maintenance spending.
"All mining services companies are trying to work out where the bottom is," Argonaut Securities analyst Ian Christie said.
Whether the shares are worth buying at this stage depends on whether the investor is looking to the short term or the longer term, he said, especially if they are buying in anticipation of when mining sector spending will pick up.
"Near term, the focus will be on cash flow and debt reduction," Mr Christie said.
Concerns over its debt level prompted Standard & Poor's to place Ausdrill's long-term BB credit rating on "creditwatch with negative implications".
"If Ausdrill's performance were to deteriorate further after fiscal 2014, this will worsen the company's financial credit metrics to the extent that they may not support our view of its 'intermediate' financial risk profile," S&P analyst Craig Parker said.