What: Today, shares in infrastructure and mining services company, UGL Limited (ASX: UGL), opened trading in negative territory, down 2.2% at the time of writing. Since posting a high of around $16 per share in 2011, UGL have fallen hard, opening at just $6.68 this morning.
So What: UGL has drifted lower despite announcing an underlying profit of $111.7 million (an increase of 22% year-on-year) and operating revenue of $4.5 billion, up 6%. Other important results from the announcement include:
- $4.3 billion in new contract wins and extensions
- Underlying earnings of 67.1 cents per share
- Estimated capital return of between $400 and $500 million following the completion of the sale of DTZ expected later in the year
- Engineering order book of $4.9 billion
- 4.1% EBIT margin (up from 3.6%)
- Net profit after tax (NPAT) margin of 2.5% (up 2.2% year-on-year)
Now what: UGL is, like many other engineering firms, such as RCR Tomlinson Limited (ASX: RCR), trying to diversify its operations away from the slowing mining services sector. Whilst we're likely to witness the benefits of its restructuring initiatives in FY15, as well as a significant capital return of between $400 million and $500 million, UGL does not pay a dividend and has very slim profit margins. Therefore, it's not a stock I'm willing to buy right now.
