Transfield Services Limited has strong forward momentum: Should you buy?

Based on management's outlook, Transfield Services Limited (ASX:TSE) could be worth a close look.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Management at industrial services company Transfield Services Limited (ASX: TSE) has described the group as having "delivered on our FY2014 commitments" and with "strong forward momentum". This commentary provided when handing down the firm's 2014 financial year results today

What's happened: After a tumultuous period which has seen the share price of the group fall from over $4 per share in 2010 to a low of 74 cents per share in 2014, it would appear that Transfield is beginning to find its feet. The share price is up 70% in the last 12 months and results released today show a marked improvement in performance.

Here are the highlights:

  • Underlying net profit after tax soared 85% to $73 million
  • Capital expenditure was reduced by $75 million
  • Return on capital employed increased from 7.8% to 10%

And the lowlights:

  • Net debt is still high at $534 million
  • And the board isn't declaring a dividend, preferring instead to concentrate on debt reduction

Outlook and Guidance: Management has commented that it expects ongoing strong performance in its Defence, Social and Property division with an expanded footprint in Defence from December 2014. The medium-term outlook for its Oil and Gas division also remains positive both in Australia and America. While political indecision regarding the NBN does create some uncertainty, Transfield is expecting its Telecommunications division to also grow as NBN packages are released.

All up, management appears positive on Transfield's outlook and has provided FY 2015 guidance for underlying EBITDA in the range of $240 million to $260 million, which compares incredibly favourably with the FY 2014 result of $217 million.

Based on the current market capitalisation and accounting for the debt in the business, coupled with management's outlook statement, Transfield would appear to be relatively cheaply priced and a stock for investors to take a closer look at.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »