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No relief for mining services as Ausdrill Limited reports

Although its operations are more diversified than other mining services companies, Ausdrill Limited (ASX: ASL) was unable to escape the punishment being unleashed on the sector with the group’s managing director, Ron Sayers, describing the situation as “the toughest business conditions for some years.”

The stock lost 4.6% yesterday as the market absorbed the results released by the company late on Friday which echoed a 69.9% fall in first-half earnings as well as a 61.5% decrease to its interim dividend, from 6.5c to 2.5c. Revenue plummeted 26.9% to $424.2 million and earnings before interest and tax (EBIT) dropped 50% to $40.5 million.

The poor results came thanks to a slowdown in spending in the mining sector. The miners, such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), have taken the majority of their operations in-house to save on costs charged by contractors.

Mr Sayers said that areas of the business including exploration and equipment hire were likely to remain subdued for the remainder of the year. It is a little more optimistic regarding the forecast increase in iron ore production from the Pilbara as well as the improving gold price, which it believes will turn into a resumption of spending by the industry. What’s more, recent contract wins and increasing volumes on existing mining contracts is expected to result in an improved performance in 2015.

Shares in the business fell to 93c on Monday and the company is currently trading on a P/E ratio of five times. In the last 12 months, the company has plummeted more than 68%.

Foolish takeaway

Investors viewing the fall in price as an opportunity to buy may want to think again. While one or two companies from the industry could prove resilient to the tough conditions, it is likely that the majority of the sector will experience further pain before conditions start to improve.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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