Why Transfield shares got crushed

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of Transfield Services Limited (ASX: TSE) fell by over 13% by lunchtime today, after revising its full year FY2012 guidance. The company now expects full year reported net profit after tax to be around $105m pre-amortisation, down from $130m announced on 22nd February 2012.

So what: The revision is due to $9m of extreme weather impact since 22nd February 2012, plus $16m of provisions for a legacy construction contract. A cyclone in Western Australia and unusual extreme weather in South Australia and Queensland were not budgeted for, while additional costs were incurred to meet changes in the construction project’s scope, delays in material supply, and geotechnical problems – while still meeting the client’s schedule.

Now what: Weather is unpredictable, and usually an acceptable reason for cost blow outs. The blow out in contract costs appears to suggest a lack of effective risk management practices during project development and delivery cycles. If a client changes the scope of a project, usually the client would be liable for the additional costs.

Yet another reason to avoid this infrastructure services company.

If you’re looking for ASX investing ideas, look no further than “The Motley Fool’s Top Stock for 2012.” In this free report, Investment Analyst Dean Morel names his top pick for 2012…and beyond. Click here now to find out the name of this small but growing telecommunications company. But hurry – the report is free for only a limited period of time.

More reading

Motley Fool contributor Mike King doesn’t own shares in Transfield. The Motley Fool ’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.  Click here  to be enlightened by The Motley Fool’s disclosure policy.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked…

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of The Motley Fool’s Top 3 Blue Chip Stocks for 2019.

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

See the 3 blue chip stocks

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.