In today’s daily we have covered stock research on WDS (BUY).











 
The S&P 500 was down by 0.68points or 0.03%on Tuesday to 2068.70 points. The Standard & Poor’s 500 Index fluctuated near an all-time high as an unexpected drop in consumer confidence offset faster economic expansion. Treasuries rose, while oil and the dollar fell. The U.S. economy expanded at a 3.9 percent annualized rate in the third quarter, up from an initial reading of 3.5 percent.

In Europe, the FTSE Eurofirst 300 ended 0.2 per cent higher at a two-month peak, while the Nikkei 225 in Tokyo added 0.3 per cent. The Shanghai Composite rose 1.4 per cent to a three-year high amid lingering hopes for further Chinese interest cuts. The euro was up 0.2 per cent at $1.2471, while the US currency slipped 0.4 per cent against the yen to Y117.85. The US dollar’s retreat was attributed by some to news that the Conference Board’s index of US consumer confidence had fallen to 88.7 in November from 94.1 – defying expectations for a modest increase.




Nikkei 225 Daily Chart (Source – Thomson Reuters)
S&P ASX 200was down by 27.0points or 0.50% on Tuesday and closed at 5334.8 points. Foreign exchange services group OzForex soared 8.85 per cent to $2.46 after lifting its first-half net profit by 26 per cent to $11.98 million. National Australia Bank closed down 0.68 per cent to $32.15, Westpac dipped 0.09 per cent to $32.60, Commonwealth Bank slipped 0.31 per cent to $80.17 while ANZ finished 0.72 per cent higher to $32.10.
Shares in retailer Harvey Norman stayed flat at $3.71 after the company tapped investors for $120.7 million in a capital raising. Shares in the retailer slumped by nearly 5 per cent when details of the capital raising were announced in morning trade ahead of the company’s AGM, but recovered afterwards. Ore with 62 per cent content delivered to Qingdao fell 1.2 per cent to $US69.58 a dry metric ton, the lowest since June 2009. SPI futures are up 11 points.

OZFOREX Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day - WDS Limited (BUY)

WDS Limited (WDS) recently announced that its Energy Division signed a Construction Contract with Santos GLNG for the Roma West Phase 2 Project. This project is for the installation of facilities for 28 wells, and entails the connected gas and water gathering systems and high voltage power. The project is vital for WDS as it strengthens the Company’s association with Santos, and is expected to begin on the ground early in 2015.


Cash Flow from Operations (Source – Company Reports)

Key exemplary achievements of FY14 for the Energy Division included Australian Pipeline Industry Association Environmental Award; completion of 20 months of construction on APLNG in South East Queensland; eleven years of service delivery to  Santos in view of Construction Services Agreement for Santos’ GLNG project for works to be carried out in the Roma, Fairview and Arcadia fields in Queensland; awarded with JV partner CPECC Arrow Energy’s Domestic Gas Field Development and Operations Construction Master Services Agreement; completion and handover on the Fairymeadow Road Water Pipeline for APLNG Upstream Project; and so forth.

For Mining Division, key exemplary highlights included Eagle Downs Coal Management award of Drift construction contract; continued presence at the North Goonyella Mine in Queensland; constant supply of roadway development labour into Wambo Mine; Glencore Oaky North secondary support; and the like.
The Company lately sought for a trading halt in respect of WDS’ ordinary shares pending a release to the market regarding a trading update. WDS requested for this halt to be put in place until the earlier of the commencement of trading on 12 November 2014 or the release of the trading update.

As per the market update thereafter, the Company provided information about its preliminary earnings expectations for FY15. The Company reduced its earlier provided guidance of 13 October 2014 of an NPAT of $1m to $3m to an underlying NPAT loss of $6m to $8m and a one-off charge for Mining goodwill impairment of circa $5m resulting in a total statutory NPAT loss of $11m to $13m. The key factors behind this include the risks associated with ramping-up the productivity levels on developing the Eagle Downs underground drifts; and the ability to secure work from all key clients. Primarily, risks associated with timelines needed under the Project deeds and cost impacts for the Eagle Downs Project are required to be taken into consideration. The commercial success of the project is based on implementation and integration of technical approaches such as those associated with the civil tunneling sector. The Company nonetheless is able to resolve various technical glitches time and again although at a little slower pace. The Company believes that it will be able to achieve the target productivity levels, though not by early CY 2015.


Energy Division EBITDA (Source – Company Reports)

WDS has also reassessed the carrying value of its goodwill relating to the Mining Division wherein the Board expects to write off the full $5,362,000 mining goodwill balance. The Company further stated that the write down is non-cash and will not affect WDS operations. In spite of the little turbulence, WDS’ Board is confident in the medium and longer term outlook for the Mining Division.  


Mining Division EBITDA (Source – Company Reports)

The Company also updated that in view of the recent feedback from APLNG, WDS is currently demobilizing from site and is unlikely to secure any further work from APLNG over the forecast period. This is in view of the tragedy of September 2014 wherein one of WDS’ employees suffered a fatal injury at a WDS worksite on the Australia Pacific LNG project in Queensland.

Accordingly, WDS adjusted its Energy Division’s projected revenue forecasts to reflect the above and to recognize changes in assumptions around the timing of securing new work. WDS continued to actively tender for further works under the sustain phase of all of the various CSG/LNG projects operating in Queensland. WDS has made an additional provision of $7.4 million in view of the project delays and costs associated with unforeseen risks.

Accordingly, the Company announced for revenue forecast in the range of $300m to $320m for FY15 (previously $330m to $350m).

WDS has suspended its current dividend policy, which will be looked over again after the earnings outlook has been restored and stabilized. There have been some changes with regards to the constitution of the management. This will help the Company reshape and revive to deliver on its commitments.


Order Book (Source – Company Reports)

Nonetheless, the recent construction contract with Santos GLNG, WDS’ capability to generate free cash flow, expanded order book in the Energy business and opportunity pipeline still catch our attention. We also note that notable new wins in the sustaining phase of CSG development may help WDS further emerge successfully. The Company does appear to be of above average quality with a long-term business growth. Accordingly, we put a BUY recommendation for this stock at the current price of $0.287.
 

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