Programmed Maintenance Services Limited (ASX: PRG) saw its share price zoom more than 10% higher to $1.62, after the diversified services group reported a 24.5% increase in underlying net profit.
However, the company was forced to take a $102.4 million dollar impairment on its Marine division thanks to the big fall in oil prices. Another $34 million in integration expenses for its acquisition of Skilled Group and various other one-off items saw Programmed report a statutory loss of $98 million for the 12 months ending March 2016 (FY16).
Underlying earnings per share (EPS) were 21.8 cents, which equates to a current P/E ratio of ~7.5x – hardly expensive. And a fully franked dividend of 11.5 cents for the full year represents a yield of 7.1%.
However, Programmed is considering underwriting its dividend reinvestment plan (DRP), which essentially is handing out cash to shareholders with one hand and taking it back with the other. It means that the underwriter will pay Programmed as if every shareholder opts in to the DRP and receive shares effectively diluting existing shareholders. For the company, it means no net outflow of cash.
Looking out to FY17, Programmed is forecasting earnings before interest, tax, depreciation and amortisation (EBITDA) of between $120 and $130 million, excluding one-off (or non-trading as the company calls them) items.
Programmed's divisional performance was as follows…
| Revenues | EBITA | Margin | |
| Staffing | 896.7 | 21.7 | 2.4% |
| Maintenance | 960.5 | 41.1 | 4.3% |
| Marine | 348.8 | 18.3 | 5.2% |
| Other | 3 | -15.6 | |
| Total | 2209 | 65.5 |
Source: Company reports
Like other services companies including Spotless Group Holdings Ltd (ASX: SPO) and Broadspectrum Ltd (ASX: BRS) – formerly Transfield Services, Programmed benefits from increasing in size and scale, which should allow the company to grow its margins over time – particularly after the acquisition of Skilled Group.
Foolish takeaway
Despite the promise, Programmed operates in a tough industry with skinny margins and one troublesome project that runs over budget can turn a profit into a loss in a relatively short period. With substantial net debt of $239 million ($406 million market cap), Programmed is not that attractive – although other investors certainly appear to think so today.
