McAleese Ltd (ASX: MCS) has shocked the market with an announcement that it has lost revenues to the value of $92.5 million – McAleese’s shares fell 28.8% to $1.09 as investors considered the consequences. Its bad news and a poor start for shareholders in a company that has barely been listed for two months following its initial public offering (IPO) in November 2013 at an offer price of $1.47.
The cause of the revenue loss was subsidiary Cootes Transport losing its national contract to transport fuel for Shell and its NSW contract for fuel transportation with BP. In response to the contract losses Cootes was forced to also terminate its 7-Eleven fuel transportation contract, citing poor profitability. In total the lost revenue of $92.5 million equates to 60% of Cootes’ fuel transportation revenues and 12% of forecast group wide revenues for financial year (FY) 2014.
It appears however that McAleese’ loss may be rival Toll Holdings Limited’s (ASX: TOL) gain. According to a report in the Australian Financial Review, Toll has been successful in winning the 5-year contract for deliveries of fuel to Shell’s service stations across Queensland, NSW, Victoria, SA and WA.
The road transport sector in general is a difficult place to do business with high fixed costs and razor thin profit margins. This can make the sector an unlikely hunting ground for long-term investors looking to buy high quality companies.
For value investors however, opportunities can present themselves. The recent merger between trucking firms K&S Corporation Ltd (ASX: KSC) and Scott Corporation Limited (ASX: SCC) highlighted the hidden value in Scott Corp – in the past year Scott’s share price has rallied nearly 64%.
Likewise, the tumble experienced in McAleese’s share price may create an opportunity in the future for value investors, although investors shouldn’t expect the share price to bounce back to IPO levels any time soon, nor should they gloss over the company’s highly geared balance sheet.