Skilled Group Ltd (ASX: SKE), a labour hire firm heavily focused on the resources sector, saw its shares sink 6.2% today, after broker CIMB cut his rating on the company from 'buy' to 'hold'.
Julian Guido, from CIMB notes that the company is likely to generate lower growth than expected. With the Gorgon-related project work winding down, the Saipam/Inpex contract may not make up the revenue shortfall.
In February, Skilled reported a 25% slump in net profit after tax, despite aggressive cost cutting, and improved revenue from the oil and gas sector. With exposure to declining resources investment, Skilled certainly faces much tougher times ahead, like most mining services companies, including WorleyParson Limited (ASX: WOR), Monadelphous Group Limited (ASX: MND), NRW Holdings Limited (ASX: NWH) and Fleetwood Corporation Limited (ASX: FWD).
Mining investment has only just started decreasing, and is forecast to continue falling for at least the next few years. As a result, there will be less contract work available, less jobs and what is left, will be at the mercy of the hiring companies – likely to crush the mining services companies, if they are lucky enough to win a contract. Management of these companies will have their work cut out for them over the short to medium-term.
It's not a sector for the faint hearted. Investors would be better off taking a peek at a company Motley Fool analysts have identified as their number one stock for 2014.
