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Bradken earnings guidance in line; Forge Group in trading halt

This week Bradken (ASX: BKN), manufacturer and supplier of consumable and capital products, released its earnings guidance for 2014 first half. Excluding one-off items that are seen as not to be significant, operating earnings before interest, tax, depreciation and amortisation (EBITDA) is forecast to be about $85 million for the half year.

In the first half 2013, EBITDA was $83.2 million, and that year’s second half came in stronger at $110.3 million.

The company said with improvements in order intake, it expected the full year to be broadly in line with the operating 2013 result of $193.45 million. It has just opened a new industrial forge facility in China to take advantage of lower production costs for this global capital goods company.

Forge Group (ASX: FGE) has had a stumble concerning the possible underperformance of two project contracts with power stations being built in Western Australia and Queensland. It is expected to announce earnings guidance on 11 November, yet it has requested a trading halt on shares until it can adequately clarify the position in relation to those projects.

Since the beginning of September, its share price has been going down from about $6 to where it stands now at $4.18, and near the bottom of the trading range it has been in since April 2011.

Despite that, the company raised its net profit after tax (NPAT) by 27.5% in 2013 from $49.3 million to $62.9 million. The mining industry’s downturn is putting pressure on heavy industrials companies, so with market sentiment on related industries dismal, sudden trading halts send jitters through investors.

Over the past three years, Forge has grown NPAT by an average 28.8% annually and its return on equity has been near or slightly over 30% over the past five years, so investors need to take a step back from the news and gloom to see what the longer-term outlook is.

Foolish takeaway

The general consensus is that mining and related industries are in sad shape, and that’s probably the best reason to be looking at these kinds of companies. When a company like Forge Group can have financial performance like above and be at a price-earnings (PE) ratio of 5.7 when Bradken is 15, Monadelphus (ASX: MND) is 10, and WorleyParsons (ASX: WOR) is 16, then either something is very wrong for the company, or investors are have a very short-sighted view of the company prospects.

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

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