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Transfield Services Limited leaps 10% – Is it too late to buy?

Transfield Services Limited (ASX: TSE) has rallied 10% today after announcing the completion of a debt restructuring with the settlement of a US$325 million senior unsecured note in the USA.

Transfield has been operating with a net debt to equity ratio of 86% which is extremely high for an engineering and maintenance contractor. Investors have rightly been nervous about Transfield’s weak balance sheet and today’s announcement has obviously relieved concerns for some investors.

Whether the interest rate struck will appease all investors is another question however. With an average interest rate across all of Transfield’s debt facilities of 9%, the company would appear to hardly be getting a great deal.

Management also took the opportunity to reaffirm guidance for the full year ending 30 June of a net profit after tax (pre-amortisation) in the range of $65 million to $70 million. With a market capitalisation of $550 million, on the face of it the stock price looks appealing.

Despite Transfield’s share price looking “cheap” however, it is far from alone given the beating up most mining service stocks have endured. Investors with an appetite for risk may choose to selectively add mining service stocks to their portfolio but they should be aware that the sector is likely to have a cloud hanging over it for quite some time yet.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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