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Transfield Services Limited has strong forward momentum: Should you buy?

Management at industrial services company Transfield Services Limited (ASX: TSE) has described the group as having “delivered on our FY2014 commitments” and with “strong forward momentum”. This commentary provided when handing down the firm’s 2014 financial year results today

What’s happened: After a tumultuous period which has seen the share price of the group fall from over $4 per share in 2010 to a low of 74 cents per share in 2014, it would appear that Transfield is beginning to find its feet. The share price is up 70% in the last 12 months and results released today show a marked improvement in performance.

Here are the highlights:

  • Underlying net profit after tax soared 85% to $73 million
  • Capital expenditure was reduced by $75 million
  • Return on capital employed increased from 7.8% to 10%

And the lowlights:

  • Net debt is still high at $534 million
  • And the board isn’t declaring a dividend, preferring instead to concentrate on debt reduction

Outlook and Guidance: Management has commented that it expects ongoing strong performance in its Defence, Social and Property division with an expanded footprint in Defence from December 2014. The medium-term outlook for its Oil and Gas division also remains positive both in Australia and America. While political indecision regarding the NBN does create some uncertainty, Transfield is expecting its Telecommunications division to also grow as NBN packages are released.

All up, management appears positive on Transfield’s outlook and has provided FY 2015 guidance for underlying EBITDA in the range of $240 million to $260 million, which compares incredibly favourably with the FY 2014 result of $217 million.

Based on the current market capitalisation and accounting for the debt in the business, coupled with management’s outlook statement, Transfield would appear to be relatively cheaply priced and a stock for investors to take a closer look at.

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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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