It has certainly been a long road for shareholders in McAleese Ltd (ASX: MCS).
A number of incidents and profit downgrades soon after its ASX debut, combined with high debt and lack of an established track record have forced the company's share price down 78% in the past 14 months.
After divesting some assets and paying down debt in the recent half, McAleese looks to be treading water – although there is a long way to go to recover the lost ground.
Here are the highlights from yesterday's release:
- Revenue shrank 8.4% to $356.8 million
- Statutory Net Profit After Tax (NPAT) of $52.5 million, mostly due to sale of non-core businesses and excess equipment
- NPAT before significant items of $11.5 million
- Net debt down 23.6% to $175.5 million
- Financial Year (FY) 2015 Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) expected to be $85-90 million ($49.5 million earned in the first half)
- Management still intends to diversify into new geographies and businesses when conditions improve
With major customers including Atlas Iron Limited (ASX: AGO) and the oil/gas industry, it goes without saying that demand for McAleese's services isn't ideal, which is most likely behind the slide in revenue.
One plus is that iron ore miners are ramping up production in order to lower their aggregate costs, which could bring extra work to McAleese.
One negative is that if McAleese becomes more dependent on the resources sector for work, it becomes increasingly exposed to margin pressure like mining services companies.
Indeed some margin pressure already appears to be impacting McAleese's earnings this half.
Soft conditions in the Heavy Haulage division of McAleese also have management prompting a rethink of its vehicles, in order to better utilise them and/or achieve synergies with other divisions.
This is not necessarily a good thing, as if management is considering 'fleet size, mix and valuation', it could mean that work is hard to come by.
A new focus on safety following last year's accidents also lead to a 25% reduction in Total Recordable Injury Frequency Rate (TRIFR), putting McAleese on par with similar businesses like Toll Holdings Limited (ASX: TOL).
While the improved focus on efficient use of capital and assets is encouraging, it's not enough for me to encourage investors to return to a company still labouring under such heavy debt.
I actually think that McAleese looks cheap at today's prices, but with debt worth multiple times its yearly income, exposure to the mining sector, and an uncertain outlook, this is an opportunity better left on the shelf.
A far more enticing opportunity is The Motley Fool's Top Stock for 2015, an innovative business which has already ensconced itself as top dog in the online space. Find out more in the FREE report below!
