Investors dump Transfield stock
Short-selling helped to push shares in Transfield Services to new all-time lows in the wake of an earnings downgrade on Tuesday coupled with a round of job cuts with 113 positions axed.
Transfield was the latest in a growing list of mining services companies to warn of tough times, following WorleyParsons, UGL and Coffey International last week, before Boart Longyear and Fleetwood shares were dumped on Tuesday.
The focus is also on others in the sector such as Swick Mining, Downer EDI and Monadelphous, with concerns over the outlook for others such as ALS, the renamed Campbell Bros, which also has a large exposure to the sector.
Downer EDI shares shed another 39¢ to close at $3.75, extending its decline from $5 touched mid-month, and Monadelphous was down another 81¢ at $16.60 after trading around $21 earlier in the month. Swick slipped 1.5¢ to 30¢.
Before the start of trading on Tuesday, Transfield cut its year-to-June profit forecast to $62 million to $65 million, from $85 million to $90 million. It cited the downturn in mining sector spending coupled with general cost-cutting by clients for the severe downgrade.
Before the downgrade, outstanding short-selling positions in Transfield had ballooned to more than 12.6 million shares from 4.6 million as recently as February, leaving the share price heavily exposed to Tuesday's bad news.
As a result, the shares were dumped, hitting a record low of 96.5¢ before closing at 97¢, a decline of 24 per cent on the day, after the shares shed 20 per cent last week. The selling has slashed the market value of the company to less than $500 million. It had been around $1 billion just over 12 months ago.
With earnings faltering as clients slash costs, Transfield said it would curtail planned capital spending, as part of a series of moves to boost cash, which include taking greater control of its debtors.
Capital spending in the year to June 2014 is to be cut to $80 million, from $150 million planned this financial year, while it is also putting a number of unwanted divisions on the block as it drives a further $26 million in costs out of the business.
"It's a tough sector to be in at the moment," one analyst said. "It has done its best to explain the changes under way, the moves to improve debtor collection and lift visibility.
"But the cycle is against you, you can't get the costs out fast enough, and there is no fat on the balance sheet to give it head room."
Analysts cautioned the company may take time to turn around, given the complexity of its business and the tough trading environment. "If you don't need to be there, there is no reason to buy. There will be plenty of opportunity in the future," another broker said.