What: Yesterday, the market welcomed engineering and mining services company RCR Tomlinson Limited's (ASX: RCR) full-year report, sending its share price up almost 7% by the day's end.
The report showed a number of promising results for a company which finds itself in an industry being hit hard by a slowdown in contract renewals and new investment. Year-on-year, RCR grew revenue by 49%, EBITDA by 36% and net profit after tax by 22%.
So what: With shares changing hands on just 10 times earnings, compared to the S&P/ASX200 Index's (INDEXASX: XJO) average of 16.4, investors weren't expecting much from the company. However management appear to be doing everything right by shareholders to secure new work and grow earnings. For example, over the past five years RCR's total shareholder return is 414% and in the past year, its order book increased significantly, to $790 million.
RCR's managing director Dr Paul Dalgleish said, "RCR delivered a 22 per cent increase in profit and a fifth consecutive year of record revenue and earnings, whilst reducing out net debt to levels of five years ago."
"We retain a healthy order book and significant recurring work load; coupled with our diversification into infrastructure we are well positioned as we move into FY15."
Now what: RCR's results were obviously above what the market had been expecting. What's more its diversification into infrastructure provides more certainty for earnings going forward. According to Morningstar's analysts' consensus forecasts, earnings per share and dividends are both expected to continue to grow strongly in coming years.
Trading on a fully franked dividend yield of 3.1% and only modest gearing levels, RCR could present as a great value play for investors scouring through the beaten-up services sector in search for quality companies. However many analysts and financial commentators are anticipating further drops in resources sector investment in the future, so a purchase of RCR's stock wouldn't be one for the feint hearted.
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