The pounding the mining services sector has taken this year has left many shareholders battered and bruised and plenty of investors wary of the whole sector.
While there are obvious reasons to be sceptical and conservative in evaluating the sector, as is often the case when 'crowd thinking' is involved, there is a habit of tainting all companies with the same brush. To use a mining analogy, there is the potential for diamonds to be found amongst the rough, as these three companies that reported today demonstrate.
The ugly
Mining equipment leasing business Emeco (ASX: EHL) has a fleet of over 1,000 heavy earth moving machines. Its business has been dramatically affected by the slowdown in the resources sector, which has seen it report a 50.5% fall in operating profit after tax for the year ending 30 June 2013. Not only have shareholders had to endure a halving in profits but they have also seen their share price fall 78% with no payment of a final dividend. Shareholders also have to contend with the worry of a balance sheet carrying a hefty load of debt.
The good
Decmil Group (ASX: DCG) specialises in civil engineering, construction, accommodation, manufacturing and maintenance services to the resource and infrastructure industries in Australia. The company has reported a record normalised net profit after tax of $45.2 million, up 16% on its 2012 result. On an earnings per share (EPS) basis however, EPS grew only 1.6% to 26.94 cents per share (cps) – hence the "good" not "great". Shareholders were treated to a 20% increase in the dividend to 12 cps and have the backing of a solid balance sheet.
The great
Diversified engineering company RCR Tomlinson (ASX: RCR) deserves top honours for its 2013 performance. The company increased net profit after tax by 37% to $37.3 million and EPS by 38% to 28.27 cps. RCR also lifted the full year dividend by 32% to 8.25 cps and carries $95.8 million in cash. What's more the company provided a positive outlook statement with the CEO Paul Dalgleish stating, "the addition of our new business, RCR Infrastructure, through a recent acquisition will provide the opportunity for significant growth in the coming year and beyond through strategic revenue diversification."
Source: Google Finance
Foolish takeaway
As the chart above shows, the difference between investing in great, good or ugly companies can mean significantly different shareholder returns. The outperformance and underperformance compared with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is stark.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
