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Investor sentiment driving UGL’s fall?

Engineering and infrastructure management services UGL Limited’s (ASX: UGL) reported net profit after tax for the 2012 financial year has fallen 15% to $134.3m on revenues of $4.8bn. The company’s net profit margin has fallen slightly to 3.5%. Reported profit included $34m of one-off acquisition costs and restructuring costs. The underlying profit rose just 2%, missing analysts forecasts of 5%.

Investors weren’t happy, with UGL’s share price sliding more than 10% at the close, despite this being the company’s 11th consecutive year of underlying profit growth. The company declared a 36 cent dividend, taking the total for the 2012 financial year to 70 cents per share, fully franked.

During the year, UGL secured $6.1 billion of new work, taking its order book to a record $9.6 billion. Over 80% of the order book consists of long-term recurring maintenance style contracts.


The company expects 2013 financial year trading conditions to remain similar to 2012, with stronger growth once global economic conditions and confidence return, although management stated that it was worried about the global outlook and that uncertainty existed in the resources and infrastructure sectors, with projects being delayed or cancelled. Australia’s biggest miner BHP Billiton Limited (ASX: BHP) has announced that no major projects would be approved before December 2012, while Woodside Petroleum Limited’s (ASX: WPL) $30 billion gas project at James Price point has also been delayed.

This was partly reflected in UGL’s order book for its resources division – falling from $1 billion in 2011 to $800 million in financial year 2012. In contrast, Downer EDI Limited’s (ASX: DOW) mining business had work-in-hand of $6.5 billion.

UGL has said that it will focus on its property services division, which has large growth potential following the acquisition of global real estate services company, DTZ Holdings for $119m in 2011.

The Foolish bottom line

Contrasting outlook comments from UGL and Downer saw their share prices head in opposite directions, despite both reporting improved earnings in the 2012 financial year. As we mentioned in our members’ only email update today, “share prices move in concert with investor sentiment (positive and negative) far more than the results themselves.

A company’s outlook statement was one of the factors I outlined in my Reporting season preview articles as one to watch.

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Motley Fool writer/analyst Mike King owns shares in BHP and Woodside. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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