Why WDS Limited crashed down 67% today

Yet another mining services company has tumbled, following the recent share price falls in Titan Energy Services Limited (ASX: TTN).

Now WDS Limited (ASX: WDS) has seen its share price drop 67% in trading so far today, after the company dramatically reduced its profit forecast to between $1 and $3 million. While the company had not previously stated a forecast, WDS did say that it was “well positioned for continuing profitable growth” in the 2015 financial year, after reporting a 61% jump in net profit in 2014 to $13.3 million.

WDS announced today that a number of factors including not winning a major coal seam gas project, ‘adverse circumstances’ experienced by its mining division and a fatality at one of its Energy division worksites.

The company also says that it hasn’t achieved the results it wanted at its Eagle Downs project, with lower revenues and margin than expected. As a result, it appears the project will make a $4 million loss this financial year.

WDS’s board appear to have taken desperate measures, with an announcement that CEO Terry Chapman will be leaving as soon as a replacement is found, and commissioning an external review of its business strategy and operations.

The announcements also raise serious doubts about the company’s order book – which WDS says was $258.9 million back in August.

WDS’s update today is yet another reminder of the risks in the mining, resources and energy services sector. Resources investment is yet to hit rock bottom, and a number of LNG projects will move from the development and construction phase to the operational phase in the next couple of years. That means less work, and likely lower margins for those companies still servicing the sector, including market leaders such as Monadelphous Group Limited (ASX: MND), UGL Limited (ASX: UGL) and Leighton Holdings Limited (ASX: LEI).

Investors, you have been warned.


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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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