The shares of mining and civil construction company Maca Ltd (ASX: MLD) have crashed down by over 23% today following the company's disappointing half year report.
On the top line the company reported $208.5 million of revenue, which is a 35% drop from the corresponding period last year. But perhaps most disappointing is how the numbers gradually get worse as we move down the income statement.
Maca pulled in EBITDA of $42.9 million, down 47% year over year, and net profit of just $12.4 million, which is a whopping 64% decline from the first half of last year. On a per share basis, the company produced earnings of 5.3 cents compared to 15.7 cents last year.
Achieving the market consensus full year earnings per share estimate of 14 cents seems incredibly unlikely now, even with an apparent order book of $1.1 billion. In its half year report management offered full year revenue guidance of $420 million. This projected 30% drop in full-year revenue would mean net profit of just $24.8 million if it isn't able to improve its margins between now and then.
By my calculations this would equate to earnings per share of just 10.6 cents, which is far below market expectations and fully explains why the market has responded so negatively to these results.
The drop in net profit margin from 10.4% to 5.9% is quite worrying and although the company has a reasonably strong balance sheet, I don't believe it will take long for it come under significant pressure, while the company still pays out a high portion of its earnings through dividends. Management has decided to pay an interim dividend of 4 cents per share, which works out to be a payout ratio of 75%. If it does the same for its final dividend it will mean the shares are trading with a forward dividend yield of 10.5%.
But like many resources shares such as BHP Billiton Limited (ASX: BHP), Monadelphous Group Limited (ASX: MND), and RCR Tomlinson Limited (ASX: RCR), I would suggest avoiding it no matter how tempting its dividend yield is. I can't help but feel that there are better options out there, especially after the recent broad market sell-off.
There is a slight chance of a turnaround though I must admit. With over two-thirds of the work it has in hand involving gold mining, the recent surge in the gold price could potentially help the company turnaround its fortunes. But let's be honest, it is a big ask and certainly not a risk I would be willing to take unfortunately.
