MENU

Sedgman’s profits down 75.1%

The resources industry provider of projects and operational services Sedgman (ASX: SDM) has hit a bump along the road, as it waits for mining to pick up over the near term. Revenue was down 24% from $590.6 million to $448.9 million, and net profit plummeted 75.1% from $37.85 million to $9.43 million.

The company attributed the depressed revenue mostly to the harsher business environment, with a slowdown in projects available during the current cyclical mining downturn. In addition, some works have been delayed as customers’ projects are held up in obtaining environmental approvals.

Three factors made the fall in earnings worse. First, there was a $6.4 million write-down by impairment for equipment to recoverable value. Next, a $7.6 million impairment charge against receivables was brought on for money owed predominantly from Discovery Metals. Last, redundancy costs of 120 employees came to $2.99 million. In all, these costs totalled $16.99 million.

The results presentation stated that the company is looking to a weaker Aussie dollar to provide relief, and for the passing of the national election to help get business flowing again. It is thought that many companies are holding off on capital investing and projects until the election is out of the way and clearer forward planning can be done.

With lower earnings, return on equity was 5.3% when in past years it regularly was in the high teens and twenties. Net profit margin of 2.1% also shows how much earnings have been compressed, aside from the lower revenue. When the mining industry is going cold, this company, as well as  other mining service companies like Macmahon Holdings (ASX: MAH) and Coffey International (ASX: COF), can tumble very quickly unless they are highly diversified in geography and service offerings.

Sedgman’s gross gearing is quite low — 15.16% — and a strong current ratio of 2.32 mean that it should be able to weather the storm. If the economy stays tight, it will have to.

For investors, this company’s returns won’t be very satisfying. If the economy stays tight, look for consolidation in the industry, and see which companies fare the best. They will be the ones that will rise when higher mining levels resume.

Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading


Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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.