Shares in Broadspectrum Ltd (ASX: BRS) ex-Transfield soared more than 7% today, after the consulting, engineering and maintenance group nearly tripled reported net profit to $25 million for the six months to December 2015.
In early trading the Broadspectrum share price jumped as high as $1.20, before coming off the boil and currently trade at around $1.13 (up 6.3%) as we head towards lunchtime.
Here are the highlights…
- Revenues: $1,861.5 million – flat compared to the first half of the 2015 financial year (1H FY15)
- Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $124.7 million, up 11% over 1H FY15.
- Underlying net profit: $27.9 million, up 54% over 1H FY15
- Dividend: None declared
- Net assets per share: $1.63
- Net debt down to $460 million, expected to fall to between $370 and $390 million by the end of June 2016.
- Share buyback of up to 10% of the company's issued shares over the next 12 months announced.
Strong result
It's definitely a positive result for Broadspectrum given the carnage in the resources and energy sectors thanks to falling commodities prices. As a result, revenues from resources and industrial make up just 18% of overall revenues (28% in FY13), with Defence, Social and Property sectors generating the lion's share of revenues. Infrastructure is also an important sector with 24% of total revenues (37% in FY13) .
Logistics and facilities management make up 41% of revenues by service line, followed by operations and maintenance. With 24%.
Blue skies ahead
In further good news, Broadspectrum says is now has $10.3 billion worth of contracted revenue compared to $8.8 billion at the same time last year, the Americas division is growing strongly and is forecasting underlying EBITDA of between $280 million and $300 million for the full 2016 financial year (FY16). That's represents a strong growth outlook for the second half of the year, considering Broadspectrum reported $124.7 million in EBITDA for the first half.
Risks haven't changed
However, the risks of investing in a cyclical business heavily exposed to the downturn in the resources and energy space haven't disappeared, and mining investment has yet to hit bottom.
Broadspectrum's margins remain ultra thin – generating just $27.9 million in profit from $1.8 billion in revenues is just 1.5% – and leaves little leeway should things go wrong – as they have in the past.
Foolish takeaway
Foolish investors might want to ignore the hype – yes, Broadspectrum is improving its financial results and the outlook appears better – but far too many things outside management's control can influence the results, particularly with such slim margins.
