Profit downgrade sends Ausdrill's share price into spiral
Ausdrill closed down 28.7 per cent at 98¢ in heavy trade, with more than 20.3 million shares changing hands, several times the usual daily volume.
Boart Longyear fell to a record low of 38¢, down 2¢, although 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 shares was suspended as it finalised an earnings revision.
Before the sharemarket opened on Thursday it warned net profit in the year to June 2014 would fall to $35 million to $45 million, well below the $90.4 million earned last financial year.
Revenue is now expected to be $825 million to $925 million, short of the $1.13 billion booked last year.
It blamed "challenging market conditions" that would remain soft until the start of the new year, when a recovery in selected markets would occur.
In contract mining, several projects have reduced waste volumes, while mining has halted at three mines in west Africa, with blast and drilling services stopping at two others.
Similarly, exploration activity remained subdued, with "no signs of a recovery in the near term", and no rise in equipment hire expected for the time being, along with lower maintenance spending.
"All mining services companies are trying to work out where the bottom is," said Argonaut analyst Ian Christie.
Whether the shares were worth buying at this stage depended on whether the investor was looking to the short or longer term, he said, especially if buying in anticipation of mining sector spending picking up. "Near term, the focus will be on cash flow and debt reduction," Mr Christie said.
Concerns over debt levels prompted Standard & Poor's to place its long-term BB credit rating on Ausdrill 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 credit analyst Craig Parker said.
Frequently Asked Questions about this Article…
Ausdrill's share price dropped significantly due to a large profit downgrade, which spooked investors and negatively affected sentiment towards the sector.
Ausdrill's share price dropped significantly due to a large profit downgrade, which spooked investors and negatively impacted sentiment towards the sector.
The profit downgrade led Ausdrill to revise its net profit forecast for the year to June 2014 to $35 million to $45 million, significantly lower than the $90.4 million earned the previous financial year.
The profit downgrade led Ausdrill to revise its net profit expectations for the year to June 2014 to between $35 million and $45 million, significantly lower than the $90.4 million earned the previous financial year.
The market reacted negatively, with Ausdrill's shares closing down 28.7% at 98 cents, and over 20.3 million shares changing hands, which was several times the usual daily volume.
The market reacted negatively, with Ausdrill's shares closing down 28.7% at 98 cents, and trading volumes significantly higher than usual.
Ausdrill attributed the profit downgrade to challenging market conditions, reduced waste volumes in contract mining, halted mining at three mines in West Africa, and subdued exploration activity.
Ausdrill attributed the profit downgrade to challenging market conditions, reduced waste volumes in contract mining, halted mining activities in West Africa, and subdued exploration activity.
The outlook for the mining services sector remains soft, with no signs of a near-term recovery in exploration activity or equipment hire, although a recovery in selected markets is expected at the start of the new year.
Analysts suggest that the future prospects for Ausdrill depend on whether investors are looking at the short or long term, with a focus on cash flow and debt reduction in the near term.
Analysts suggested that whether Ausdrill shares are worth buying depends on the investor's focus on short or long-term gains, particularly in anticipation of increased mining sector spending.
Standard & Poor's placed Ausdrill's long-term BB credit rating on 'creditwatch with negative implications' due to concerns over debt levels and potential further deterioration in performance.
Concerns over Ausdrill's debt levels 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.
The outlook for the mining services sector remains uncertain, with companies trying to determine where the bottom is, and no immediate signs of recovery in exploration activity or equipment hire.
In the near term, Ausdrill's key focus areas will be on cash flow and debt reduction, as highlighted by analysts in the article.
Investors should consider whether they are looking at short-term or long-term gains, especially in anticipation of potential recovery in mining sector spending, while also focusing on cash flow and debt reduction.
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