The three companies making the biggest waves on the ASX this morning have seen their values change drastically thanks to some important market-sensitive announcements.
Reject Shop Ltd (ASX: TRS) has dropped 6.75% to $7.88 after releasing yet another negative trading update – the third in twelve months.
As they say, bad news comes in threes and Reject Shop shareholders must surely be hoping all the dirty laundry is out in the open by now.
Investors in Ausdrill Limited (ASX: ASL) are in a similar situation with that company also releasing its third operating update in three months today; Ausdrill has fallen 12.6% to $0.76.
The news is better for holders of Transfield Services Limited (ASX: TSE) however, with an indicative, non-binding proposal from Ferrovial Servicios S.A. to acquire the company at the value of $1.95 per share.
Not surprisingly, shares in Transfield have soared 27% to $1.91.
Here’s what you need to know about each of the announcements:
Reject Shop Ltd
In a reiteration of the heads-up provided at the full-year results announcement, Reject Shop today informed the market that the company had seen total sales up 2.7% on the prior corresponding period, while comparable store sales fell 5.4%.
While the full details of the announcement can be found at the ASX website, poor consumer sentiment, unseasonably warm weather reducing winter-related sales, liquidation sales from competing businesses and disruption as a result of the Reject Shop store refurbishment project have all contributed to the negative comparable-store results.
The important thing to note is that all these problems appear to be temporary in nature, and Reject Shop should see improvements once they go away.
However, regardless of the attractive price, I personally would be inclined to wait a few more months to see if there are any further negative updates in the offing.
Ausdrill Limited (ASX: ASL)
The decline in iron ore and gold mining activity has already impacted Ausdrill’s business so far this year, and the company took another hit today after announcing earnings revisions across most of its business lines.
The collapse of Western Desert Resources back in September left Ausdrill with $8 million in unpaid debts as well as $16 million in lost revenue for the remainder of the year.
The company has also had difficulties improving the utilisation of its drilling rigs (minus $5 million from EBITDA), underperformance in Africa due to heavy rainfall, and difficulties renegotiating a long term contract with partners (minus another $9 million EBITDA). It’s therefore no surprise the company is expecting EBITDA of $150-$160 million off $840m revenue in FY15 (down from $173m from $826m previously).
The troubles in the iron ore and gold sectors will be difficult to work around as demand for Ausdrill’s services are driven in a virtually linear correlation with global commodity prices, which have been slipping lately.
However flooding and rig utilisation should improve in time, and like Reject Shop, Ausdrill is also trading at an attractive valuation.
Similar to Reject Shop I would also be waiting to see how trading conditions shape up over the next few months before considering an investment.
Transfield Services Limited
The news is all good for Transfield shareholders, with the board’s refusal to consider the offer (believing it undervalues the company) likely to keep prices high for quite some time.
However investors should bear in mind what happened during the takeover bid for Treasury Wine Estates Ltd (ASX:TWE), where management decided that already generous offers were too low and consequently aborted the takeover.
While this may not happen to Transfield, it’s an important lesson to remember and if investors see the shares trading up to a price they can’t refuse, they should take the opportunity to cash out while they’re winning.
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Motley Fool contributor Sean O'Neill owns shares in Reject Shop Ltd.