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Why the Ausenco Limited share price plunged 15% today


Mining services company Ausenco Limited (ASX: AAX) has seen its share price plunge 14.5% to 32 cents, after reporting a massive loss for the six months to June 2015.

Revenues plunged by 27% to $135.2 million and it was all downhill from there. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) came in at a loss of $3.4 million compared to a $4.6 million result in the previous half year. Ausenco reported an underlying $14.5 million loss after tax.

The company says ‘market conditions are still challenging due to ongoing market volatility and economic uncertainty‘.

Despite the dismal results, CEO Zimi Meka was upbeat, “Looking forward, a number of recent significant contract wins, including preferred contractor awards, have lifted work on hand to $278 million from $133 million earlier in the year.

Mr Meka is forecasting 2015 full year revenues of $290 million, a 14% increase over the first half, but still much lower than last year’s $362 million and less than half the revenues made in 2012. Revenues for the 12 months to June 2016 are expected to rise to between $310 million and $350 million – which may be conservative.

Ausenco appears to think that the decline in volume of activities has levelled out with a ‘significantly improved pipeline of opportunities in each region. Ausenco has operations in Asia Pacific region as well as North and South America, and Africa.

But investors should note that the company presented a similar rosy outlook back in May last year, with these statements, ‘Early signs of improved business conditions’, ‘high tender activity in the Americas’, ‘Benefiting from restructuring and strong business development initiatives’, ‘early stage project wins in APAC/Africa’ and ‘well positioned to take maximum advantage of future opportunities’.

It seems Ausenco was overly optimistic given the results it has just reported and investors should take the company’s outlook with a grain of salt. For one, mining capital expenditure is still declining and there are more companies competing for a smaller pipe of work. Monadelphous Group Ltd (ASX: MND) warned investors of that exact issue yesterday.

Foolish takeaway

Foolish investors might want to wait for real signs of a financial turnaround before considering an investment in Ausenco. I’ll leave you with a classic line from Ausenco’s report. “The Group is well positioned to benefit from an upturn in revenue.”

I hate to say it, but so is every company.

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Motley Fool contributor Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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