What: Matrix Composites & Engineering Limited (ASX: MCE) shares surged 17% on Thursday morning after reporting a massive 567% increase in earnings during the first half of its 2015 financial year and a share buy-back.
The company, which offers products and solutions to the onshore and offshore oil industry, is based in Western Australia but concerns remain over future revenues due to the fall in the oil price.
So What: Today's share price move halts the steady decline in Matrix's share price which started in May 2014 after it hit a high of $1.60. This morning's price of 80 cents represents a 50% rise from a low of 53 cents, reached in late January.
The highlights of the announcement include:
- Revenue up 20.7% to $78.5 million
- EBITDA up 77.2% to $13.6 million
- Net Profit After Tax up 567% to $3.9 million
- Dividend of 2 cents per share announced (2.5% fully franked)
- A buyback of 10% of issued capital
- Cash from operations up 282% to $15.2 million
In addition, CEO Aaron Begley announced that the company has an $86 million backlog of work which is expected to sustain the company through to the end of September this year.
What Now: While the immediate news was good, investors should note that the company's income is heavily exposed to companies whose cashflow is heavily influenced by the oil price.
Thankfully, Matrix has the ability to flex production output up or down as required but this implies that earnings visibility, looking forward 12 months, is relatively low. Mr Begley noted that there will be some short term reductions in output due to market conditions but that the medium to long-term looks strong.
Conservative investors should be cautious about investing heavily in Matrix, especially as a yield play, as the group's earnings have fluctuated between a $33 million profit in 2011 to a $15 million loss in 2012 and finally back to profitability this year.
