Engineering and construction company WDS has had its share price hammered today. The shares are currently trading at 67 cents, down 55% this morning and approximately 70% below the $2.22 year-high of September 2009.
It looks like a massive overreaction to me. This is a construction company. The margins are small and, when relatively small things inevitably go wrong, it can have a huge impact on any one year’s profit. The debt looks manageable, although it is with GE and, given the trouble their lending business is in, I reckon they’ll be asking for their money back if they get a chance.
But you have to chuckle at the timing. In late September last year, WDS raised $45.7m from institutional and retail investors at $1.70 per share. You would think that three months into the year they’d have a pretty good idea that the profit wasn’t looking good. Especially a business dependent on contracted revenues. Either that, or there’s something wrong with the accounting systems.
Less than a month later, with the cash securely in the bank, came the first profit downgrade:
‘It is now expected that the FY10 NPAT will be in the range of $22 – $24 million compared with the reported FY09 NPAT of $20.3 million. WDS notes that this may be lower than market consensus FY10 NPAT level (circa $26 million excluding Titeline acquisition) as that consensus will not have taken the new information into account.’
That was the end of October; only two months before the books would close for the December half. Now it seems even that was wildly optimistic. WDS’s ‘update’ this morning says they broke even for the half year and expect to make a $7m profit for the full-year.
Photon Group pulled the same trick, raising $114m from investors midway through last year and then following it up with an extremely disappointing six months. No doubt there are more to come – be wary of those companies that needed your money over the past six months. Perhaps repaying debt wasn’t the only reason they asked for it.
As an aside, at the 2009 AGM, Chairman Jim McDonald was harping on about the company’s corporate governance. Apparently the company was ‘awarded with a “five-star rating” for demonstrating exemplary corporate governance, from a total of 150 mid-cap companies assessed by, and reported in, the 2009 WHK Horwath Mid-Cap Report.’
Just goes to show how much those 10 pages in the annual report are worth.
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