MARKETS SPECTATOR: Transfield slammed

Five. That is the number of restructuring costs or reduced profit forecasts mining services company Transfield detailed today in an ASX statement while cutting its net profit forecast by almost a third to as low as $62 million, from as much as $90 million.

The company increased its post-tax restructuring costs by $3.1 million to $12.3 million. Additional restructuring costs are now put at $2.8 million. Transfield’s non-core business net profit forecast has been reduced by $3.4 million. These non-core business units, that include mining services and Middle East and Asian operations, are to be sold. Transfield’s core businesses aren’t doing much better. Due to “market conditions” core business net profit forecast was reduced by $8.5 million. “Other factors” at its core business operations further reduced net profit by $2.6 million.

No wonder Transfield had to spend money on breakfast, refreshments and lunch for analysts, probably to give them sustenance as they face substantial work on their earnings models tonight.

Transfield’s stock, unsurprisingly, was slammed. At the close of trading today the shares were down 30.5 cents, or 24 per cent, to 97 cents. The stock hit a 52-week low of 96.5 cents today. On February 18 Transfield’s shares was trading as high as $2.16.

The company’s share price slump helped send the benchmark S&P/ASX 200 Index down 28.935, or 0.6 per cent, to 5180.10.

In one of its slides in the presentation to analysts, Tranfield assured analysts “we have a plan” which includes the usual suspects: cost cutting, cross selling and new markets. But there is little the company can do if its biggest customers in the antipodes, Australia and New Zealand, who accounted for 78 per cent of 2012 revenue, are cutting back as infrastructure building stalls and commodity prices slide. Transfield customers include BHP, UGL and Orica.

Fleetwood yesterday warned of a “softening resources sector” in an ASX statement yesterday. WorleyParsons chief executive Andrew Wood told Markets Spectator last week that business conditions for the mining services company had “deteriorated” quicker than previously thought possible.   

With clients such as UGL cutting their forecast profit by almost 50 per cent and BHP’s new chief executive Andrew Mackenzie in his first major speech to investors last week assuring them his biggest concern is keeping an eye on spending, the chances of Transfield’s business further sliding are surely high.