Speedcast International Ltd (ASX:SDA) shares smashed on guidance downgrade

The Speedcast International Ltd (ASX:SDA) share price has been smashed after a surprise earnings guidance downgrade…

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Speedcast International Ltd (ASX: SDA) share price has been the worst performer on the All Ordinaries on Tuesday with a massive 35% decline to $4.35.

Although its shares have rebounded slightly, they still sit 32% lower at $4.55 in afternoon trade following the release of its half year results.

Here's how Speedcast performed compared to the prior corresponding period:

  • Revenue grew 24% to US$304.9 million.
  • Underlying EBITDA increased 14% to US$60.4 million.
  • EBITDA margin narrowed by 180 basis points to 19.8%.
  • Underlying NPATA grew 37% to US$21.1 million.
  • Net debt increased to US$430 million.
  • Fully franked interim dividend of 240 Australian cents.
  • Outlook: Underlying FY 2018 EBITDA to be in the range of US$135 million to US$145 million.

Overall, I thought this was a solid first half performance from Speedcast with three out of its four divisions delivering robust growth compared to the prior corresponding period.

The Maritime division grew revenue by 10% to US$106 million. This was driven primarily by high growth in its Commercial Shipping business from increased VSAT activations and some bandwidth growth in its Cruise business.

EEM revenue grew organically by 29% in the first half to US$75 million. The catalyst for this positive performance was the first phase of the NBN contract in Australia and growth in wholesale voice activity.

Speedcast's Government division saw revenue increase 17% on a pro forma basis. This was driven by the Ultisat acquisition and increased US defence spending.

The Energy division was the only disappointment in the first half. Energy revenue fell 17% to US$76 million due to the delayed recovery in the offshore energy sector. This resulted in higher than expected industry churn and pricing pressure. The division was also impacted by delays in certain projects and one-time customer effects.

Outlook.

While the Energy division's performance was disappointing, it was the company's outlook that sent shareholders to the exits in a hurry today.

Source: Company presentation

As shown above, management provided underlying FY 2018 EBITDA guidance in the range of US$135 million to US$145 million. This is down from guidance of ~US$155 million reiterated as recently as the end of May.

Should you invest?

Based on today's result and its earnings per share of 8.8 cents, Speedcast's shares are trading at approximately 25x annualised earnings. While that may prove to be fair for the company, I intend to wait and see how it performs in the second half and the guidance management gives for FY 2019.

In the meantime, I would sooner look at the shares of industry peers Superloop Ltd (ASX: SLC) or Macquarie Telecom Group Ltd (ASX: MAQ).

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.

More on Share Fallers

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Aussie Broadband, Liontown, Metals Acquisition, and Seek shares are falling

These ASX shares are having a poor session. But why?

Read more »

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Arafura Rare Earths, Core Lithium, Goodman, and Superloop shares are falling today

These ASX shares are starting the week in the red. But why?

Read more »

An industrial warehouse manager sits at a desk in a warehouse looking at his computer while the Centuria Industrial share price rises
REITs

Why bond yields are bruising ASX property shares on Monday

It's a bad day to own property shares this Monday...

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Resources Shares

Fortescue shares retreat to fresh 2024 low as iron ore breaks below US$100 per tonne

It's been an awful start to the week for Fortescue stock.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Materials Shares

Why are ASX lithium shares being annihilated on Friday?

It's a bad day to own lithium stocks...

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Appen, Aussie Broadband, Core Lithium, and Westpac shares are dropping today

These ASX shares are having a rough session on Thursday. But why?

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

Why Core Lithium, Jupiter Mines, Newmont, and Perpetual shares are dropping today

These ASX shares are having a tough time on hump day. What's happening?

Read more »

Bored man sitting at his desk with his laptop.
Share Fallers

Why BHP, Brainchip, Lake Resources, and Yancoal shares are sinking today

These ASX shares are deep in the red today. But why?

Read more »