Diversified engineering and property services firm UGL Limited's (ASX: UGL) shares have been dealt a harsh blow despite the company producing a respectable underlying result.
The stock fell 12% on Monday after the release of its interim results, while the broader S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) gained 0.5%. UGL's share price has now lost 46.7% over the past 12 months.
Group underlying revenues increased 7% to $2.23 billion while underlying net profit after tax fell just 3% to $49.7 million. The DTZ property services business produced impressive growth. Sales bounced 18% higher and earnings jumped 27%. In contrast the Engineering division held revenues basically flat with a fall of just 1%, however earnings sunk 40%.
With net debt increasing from $581 million to $641 million over the half, restructuring costs draining cash and the potential demerger of DTZ approaching, the board decided to conserve cash and not pay a dividend.
Management's outlook statement suggested the DTZ division should continue to grow strongly for the remainder of financial-year 2014, while the Engineering division is expected to maintain a flat revenue year-on-year. Guidance is for underlying net profit after tax of $120 million.
Foolish takeaway
The separation of the DTZ business from the Engineering business is expected to be completed by 30 June 2014. The demerger creates a potential near-term catalyst for UGL which could make this stock one for the watchlist of investors.
