Why WDS Limited crashed down 67% today

Mining, oil and gas services sector – another hand grenade goes off

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 13, 2014 1:05 pm AEDT

Yet another mining services company has tumbled, following the recent share price falls in Titan Energy Services Limited (ASX: TTN).

Now WDS Limited (ASX: WDS) has seen its share price drop 67% in trading so far today, after the company dramatically reduced its profit forecast to between $1 and $3 million. While the company had not previously stated a forecast, WDS did say that it was "well positioned for continuing profitable growth" in the 2015 financial year, after reporting a 61% jump in net profit in 2014 to $13.3 million.

WDS announced today that a number of factors including not winning a major coal seam gas project, 'adverse circumstances' experienced by its mining division and a fatality at one of its Energy division worksites.

The company also says that it hasn't achieved the results it wanted at its Eagle Downs project, with lower revenues and margin than expected. As a result, it appears the project will make a $4 million loss this financial year.

WDS's board appear to have taken desperate measures, with an announcement that CEO Terry Chapman will be leaving as soon as a replacement is found, and commissioning an external review of its business strategy and operations.

The announcements also raise serious doubts about the company's order book – which WDS says was $258.9 million back in August.

WDS's update today is yet another reminder of the risks in the mining, resources and energy services sector. Resources investment is yet to hit rock bottom, and a number of LNG projects will move from the development and construction phase to the operational phase in the next couple of years. That means less work, and likely lower margins for those companies still servicing the sector, including market leaders such as Monadelphous Group Limited (ASX: MND), UGL Limited (ASX: UGL) and Leighton Holdings Limited (ASX: LEI).

Investors, you have been warned.

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