Investors dump Ausdrill shares after hefty profit downgrade
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.
Frequently Asked Questions about this Article…
Ausdrill shares dropped significantly due to a large profit downgrade, which spooked investors and negatively impacted sentiment towards the sector.
Ausdrill shares dropped significantly due to a hefty profit downgrade, which spooked investors and negatively impacted sentiment towards the sector.
The profit downgrade led to Ausdrill's share price closing down 28.7% at 98 cents, with more than 20.3 million shares changing hands, several times the usual daily volume.
Ausdrill shares fell by 28.7% to close at 98 cents in heavy trading.
Boart Longyear's shares fell to a record low, while Imdex managed to recover from earlier weakness, closing up slightly due to its exposure to the oil sector.
Ausdrill warned that net profit for the year would fall to between $35 million and $45 million, significantly lower than the $90.4 million earned in the last financial year.
Ausdrill expects its net profit to fall between $35 million and $45 million, significantly lower than the $90.4 million earned last financial year. Revenue is also expected to decrease to between $825 million and $925 million.
Ausdrill attributed the profit downgrade to 'challenging market conditions,' which are expected to remain soft until a recovery in selected markets occurs.
Ausdrill attributed the profit downgrade to challenging market conditions, reduced waste volumes in contract mining, halted work at several mines, and subdued exploration activity.
Concerns over Ausdrill's debt level led Standard & Poor's to place the company's long-term BB credit rating on 'creditwatch with negative implications.'
Analysts suggest that the mining services sector is trying to determine where the bottom is, with a focus on cash flow and debt reduction in the near term. The sector is expected to remain soft until a recovery in selected markets occurs.
The outlook for the mining sector remains subdued, with no signs of a near-term recovery in exploration activity or equipment hire, and lower maintenance spending expected.
Concerns over Ausdrill's debt levels have led Standard & Poor's to place its long-term BB credit rating on 'creditwatch with negative implications,' indicating potential financial risk if performance deteriorates further.
Investors should consider whether they are looking at the short-term or long-term prospects, especially in anticipation of when mining sector spending will pick up.
Whether to buy Ausdrill shares depends on the investor's focus on short-term or long-term gains. Analysts suggest considering the timing of when mining sector spending might pick up before making a decision.
In the near term, Ausdrill's focus will be on cash flow and debt reduction, according to Argonaut Securities analyst Ian Christie.
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