Blood in the water: WDS Limited share price crashes another 30%

Construction and engineering company WDS Limited (ASX: WDS) has seen its share price hammered down 34% in mid-afternoon trading to just 19.5 cents.

Today the company revised down its profit guidance for the 2015 financial year…again. Now the company says it expects to report a loss of between $11 and $13 million, including $5 million of writeoffs on its mining operations.

Last month, WDS says it expected a net profit after tax of between $1 and $3 million, and the shares subsequently fell 67% in one day.

Here are the reasons why the mining services and construction company has lower its forecast.

  • A worker was fatally injured on the Australia Pacific LNG (APLNG) project in September.
  • The energy division was unsuccessful in winning a package of work for a major coal seam gas project, and has continued to fail to win work, including demobilising from the APLNG project. WDS had still expected to continue to secure new contracts in October.
  • The mining division was experiencing less revenue and lower margins on the Eagle Downs coal project, and WDS had been unable to improve results to a satisfactory level.

At the October update, clearly the board wasn’t happy and replaced the managing director, Terry Chapman, who agreed to stay on until a successor was found. Today the board announced that Laurie Voyer was appointed as CEO, and Mr Chapman was leaving immediately.

WDS has also canned its dividend, until the company can achieve stable and predictable earnings. Directors will feel the pain too, with director’s fees cut by 25%.

And while the company says the one-off $5 million writedown is non cash, doesn’t affect bank covenants and has no effect on WDS operations, it is still a cost that shareholders have to bear.

We’ve noted this many times, but these are the sort of things that can go wrong for contractors and mining services companies. Titan Energy Services Limited (ASX: TTN), Ausdrill Limited (ASX: ASL), UGL Limited (ASX: UGL), Watpac Limited (ASX: WTP) and NRW Holdings Limited (ASX: NWH) have all felt the pain in recent times. We wonder why investors have been so surprised by today’s announcement.

With the mining services sector still to experience further contract cuts, an investment in the industry is a high risk play.


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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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