Why Saunders International Ltd dropped 20% in early trading

Storage tank builder Saunders International Ltd (ASX:SND) hit by delay in award of contracts

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Despite a second day of big falls on Wall Street overnight, our Aussie market is surprisingly flat in mid-morning trading. The All Ordinaries (Index: ^AORD) (ASX: XAO) is up 0.05% at 5,519.50.

Saunders International Ltd (ASX: SND) on the other hand, has seen its share price fall 20% to 76 cents, after the company announced that it first half revenue was likely to be around $24 million, 28% lower than the same period last year.

The company, which specialises in the design, construction and maintenance of steel bulk liquid storage tanks, says it now expects to report a net profit after tax for the six months to December 2014 of $2.7 million. That's roughly in line with the previous years'.

The price fall is surprising, given the managing director, John Power, noted that first half revenue was likely to be impacted by the delay in the award of some contracts at the annual general meeting, held in November 2014.

Today Mr Power noted that should these delays continue, full year revenues were also likely to be impacted. Back in November, Mr Power was upbeat on the pipeline of projects.

"The increased activity that we foreshadowed from both Australian and International terminal operators is gaining momentum, with all operators planning expanded storage facilities. The increased requirement for new terminals and new tankage generated by these planned expansions will provide opportunities for the company in the coming years," he said.

Saunders has already done some work for Caltex Australia Limited (ASX: CTX) at its Kurnell facility, as Caltex converts it from a refinery into a petroleum terminal operation. Conversions at Shell, Clyde and BP, Brisbane in the second half of the 2015 financial year were also expected to provide opportunities for Saunders.

The company has performed work for a wide range of clients from miners Rio Tinto Limited (ASX: RIO) and Barrick Gold, to Orica Limited (ASX: ORI), Caltex, Santos Ltd (ASX: STO), BP, Shell and Exxon Mobil. But given the nature of its specialised services, revenues and profits can fluctuate widely from year to year. However, dividend yields have been consistently high from year to year, offering potential for investors willing to take a long-term punt.

Motley Fool writer/analyst Mike King owns shares in Santos. You can follow Mike on Twitter @TMFKinga

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