RCR Tomlinson Limited shares jump on profit result: Is it time to buy?

Despite a 16.7% fall in revenue, shares of mining services business, RCR Tomlinson Limited (ASX:RCR), have reacted positively to news of a 3.9% profit increase.

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This morning, mining services business RCR Tomlinson Limited (ASX: RCR) bucked the trend of falling profits with the announcement of its half-yearly results.

Whilst in the six months to 31 December 2014 the company reported a 16.7% fall in revenue, to $584.5 million, net profit after tax rose a surprising 3.9% to $19 million, following a heavy focus on reducing costs. Its earnings before interest and tax, or EBIT margin increased to 4.9%.

In the wake of falling mining investment, services businesses have been hard hit, sometimes reporting heavy losses and cutting their dividends entirely. RCR Tomlinson shareholders can however expect a 3.5 cents per share fully franked dividend to hit their bank accounts on 7 April 2015.

The company stated it: "Has over 70 percent of its revenues and earnings generated from the Infrastructure and Energy markets, a recurring revenue base and a current order book steady at $0.7 billion." Having this diversification has clearly helped RCR.

However even larger companies such as Monaldelphous Group Limited (ASX: MND) and Worleyparsons Limited (ASX: WOR) haven't been immune from the huge declines in mining investment. Their share prices are down 43% and 26% in the past year.

Commenting on the results, RCR Tomlinson's Managing Director, Dr Paul Dalhleish said: "It is pleasing to improve our profitability in both absolute and percentage terms as we refine the operating performance of the business and reduce costs."

He said, "A significant reduction in net debt, down from $90 million post the acquisition of our Infrastructure business to $18.1 million" provided the company with the ability to consider further acquisitions.

Should you buy?

Despite trading on a trailing dividend yield of 4.8% fully franked and price-earnings ratio of around eight, investors should be cautious about hitting the buy button on shares in any mining services business, even RCR Tomlinson.

In the wake of a decade-long mining boom, commodity prices are plummeting and contract renewals are falling, while margins are being compressed – leaving little in the way of prudent growth opportunities.

Motley Fool Contributor Owen Raszkiewicz has no financial interest in any company mentioned. Owen welcomes your feedback on Google plus (see below) or you can follow him on Twitter @ASXinvest.

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