Why Programmed Maintenance Services Limited shares rocketed 14% today

Investors were fighting to get hold of Programmed Maintenance Services Limited (ASX:PRG) shares today. Here's why:

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It certainly has been a wild 12 months for shareholders of Programmed Maintenance Services Limited (ASX: PRG). During this time its shares have risen as high as $3, only to then fall as low as 93 cents.

The good news today is that its shares are on a tear again and have rocketed higher by 14% to $2.03. This came after management confirmed at its Annual General Meeting that it remains on course to deliver on its FY 2017 earnings before interest, tax, and amortisation (EBITA) forecast of between $100 and $110 million.

This will be a vast improvement on FY 2016 for the leading provider of staffing, maintenance, and facility management services. Due to taking a $102.4 million impairment in its Marine division and $34 million in integration expenses for its acquisition of Skilled Group, Programmed Maintenance Services reported a statutory loss of $98 million for FY 2016.

Management appears optimistic on the Skilled Group acquisition and rightly so. It believes it has transformed the business by increasing its scale and diversification, as well as opening up new opportunities across the combined customer base. In addition to this its integration is ahead of schedule and delivered cost savings amounting to over $30 million per annum at the end of FY 2016.

Chairman Bruce Book had this to say:

"Through consolidating the Programmed and Skilled businesses, we are positioned to become the most effective, scalable and efficient provider of services in our markets. It will take a number of years for these benefits to be fully realised as we integrate business systems and seek growth across our expanded network. We have a large platform that will allow us to continue to invest in technology and lower our unit operating costs for many years to come."

Whilst I expect Programmed Maintenance to be a solid long-term investment, I do have a few nagging doubts. Much like industry peer Spotless Group Holdings Ltd (ASX: SPO), the company does work on very slender margins. As its FY 2016 results showed, when things don't go fully to plan profits can be wiped out in the blink of an eye.

But as the company scales up I would expect to see its margins increase, which should offer some security for shareholders. This is definitely one for the watch list in my opinion.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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