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Why the Decmil Group share price is getting smashed today

The Decmil Group Limited (ASX: DCG) share price has been smashed more than 34% in early trade after the company released a market update. 

What did Decmil Group announce?

The Aussie construction and engineering group provided the market with an update this morning regarding a guidance downgrade and also announced the resignation of the company’s CFO.  

Decmil announced that, following independent valuation, its Homeground Gladstone accommodation village will be revalued from $92.4 million to $85.4 million as at 31 December 2019. The devaluation was foreshadowed at the company’s AGM earlier this year and will result in a non-cash, pre-tax charge of $7 million to the interim results for the half year.

In addition, Decmil announced that the company’s Chief Financial Officer Mr Craig Amos has resigned from his position effective 20 December 2019. In the interim, the Decmil finance team will be overseen by Mr Damian Kelliher as acting CFO.

The resignation of Mr Amos was cited due to health and family reasons.

What else did Decmil provide an update on?

The market update also provided some details on the company’s discussions with the New Zealand Department of Corrections regarding the Rapid Deployment Prisons program. Decmil notified the market that both parties have previously agreed to rest the contract process. In November, the Department informed Decmil that it was no longer going to reset the process and would work through the variations separately.

Decmil management does not believe that the change will have a material impact on earnings, however delays will impact the company’s cash position. Corrections went with Decmil for the rapid-build modular units. The original contract was agreed in May 2017, but last year, it was varied with an expansion from 360 beds to more than 900, with costs surging to surged to $406.1 million.

Foolish takeaway

Following the market update, Decmil shares have tanked more than 31% at the time of writing. The company’s share price is currently trading at $0.46, its lowest level since May 2009.  

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Motley Fool contributor Nikhil Gangaram 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.

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