Why Ausdrill Limited's shares crashed more than 12% today

Another mining services company reports profit downgrade

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The mining services sector has claimed another victim in drilling equipment and services company Ausdrill Limited (ASX: ASL).

The sector has been a litany of disasters from Boart Longyear Limited (ASX: BLY), to Titan Energy Services Limited (ASX: TTN), Forge Group, WDS Limited (ASX: WDS) and now Ausdrill.

Shareholders have born most of the pain, with the share price down 82% since March 2012. We've covered Boart, Titan, Forge and WDS in more detail here, here, here and here.

Ausdrill went into a trading halt last week, and then suspended its shares, so it could make an update on its outlook for the 2015 financial year. Today the company came out of that trading halt, and announced a profit downgrade, on the back of falling commodity prices, a lack of work opportunities and rainfall in Africa.

As a result, Ausdrill expects to report an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of between $150 million and $160 million. That of course excludes impairment charges and other one offs. The collapse of iron ore miner Western Desert Resources means Ausdrill has booked a bad debt provision of $8 million, and lost $16 million in revenues the company had expected to receive.

Lower spending by clients is also expected to hit revenues by the tune of $35 million. As a result of the underperformance, Ausdrill says it is required to carry out impairment testing on its business units, so this is unlikely to be the last bad news to come out of the company.

Like many mining services companies, Ausdrill is madly trying to slash its costs, restrict capital expenditure and review its working capital requirements, but with mining investment yet to hit the bottom, the sector as a whole has yet to feel the full effects of the pain. Ausdrill is not the first to report a profit downgrade, nor will it be the last, and market leaders like Monadelphous Group (ASX: MND) won't be spared either.

Invest in the sector at your own peril.

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

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »