Why Ausdrill Limited's shares crashed more than 12% today

Another mining services company reports profit downgrade

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 20, 2014 4:40 pm AEDT

The mining services sector has claimed another victim in drilling equipment and services company Ausdrill Limited (ASX: ASL).

The sector has been a litany of disasters from Boart Longyear Limited (ASX: BLY), to Titan Energy Services Limited (ASX: TTN), Forge Group, WDS Limited (ASX: WDS) and now Ausdrill.

Shareholders have born most of the pain, with the share price down 82% since March 2012. We've covered Boart, Titan, Forge and WDS in more detail here, here, here and here.

Ausdrill went into a trading halt last week, and then suspended its shares, so it could make an update on its outlook for the 2015 financial year. Today the company came out of that trading halt, and announced a profit downgrade, on the back of falling commodity prices, a lack of work opportunities and rainfall in Africa.

As a result, Ausdrill expects to report an underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of between $150 million and $160 million. That of course excludes impairment charges and other one offs. The collapse of iron ore miner Western Desert Resources means Ausdrill has booked a bad debt provision of $8 million, and lost $16 million in revenues the company had expected to receive.

Lower spending by clients is also expected to hit revenues by the tune of $35 million. As a result of the underperformance, Ausdrill says it is required to carry out impairment testing on its business units, so this is unlikely to be the last bad news to come out of the company.

Like many mining services companies, Ausdrill is madly trying to slash its costs, restrict capital expenditure and review its working capital requirements, but with mining investment yet to hit the bottom, the sector as a whole has yet to feel the full effects of the pain. Ausdrill is not the first to report a profit downgrade, nor will it be the last, and market leaders like Monadelphous Group (ASX: MND) won't be spared either.

Invest in the sector at your own peril.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.