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













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The S&P 500 was down by 0.37points or 0.02%on Tuesday to 1874.37 points. Energy shares were the biggest drag in late trading, with the S&P energy index falling along with oil prices. Brent crude oil settled 4.3 percent lower; the energy index was last down 1.1 percent. Some 53 S&P 500 companies are scheduled to release earnings this week. The US dollar also regained its upward momentum with sterling coming under pressure after the release of weak UK inflation figures.

Implied equity volatility as measured by the CBOE VIX index fell 4% from a 28 month high but remained above its long term average. Across the Atlantic the pan European FTSE Eurofirst 300 index pared an early decline to close just fractionally weaker while FTSE 100 in London rose 0.4%. The Nikkei 225 average in Tokyo however tumbled 2.4% as Japanese markets reopened after a long weekend break.





FTSE 100 Daily Chart (Source – Thomson Reuters)
S&P ASX 200was up by 51.90points or 1.01% on Tuesday and closed at 5207.40 points. Strong gains fromiron ore producers propelled the Australian sharemarket to a solid rally on Tuesday. Mount Gibson (MGX) Iron was the best-performing stock, up 18 per cent to 52.5¢, despite missing September-quarter revenue expectations. Atlas Iron and BC Iron were also standouts, up by more than 13 per cent each. Australia’s third-largest iron ore miner Fortescue Metals Group added 5.5 per cent to $3.65. Resources giant BHP Billiton rose 2.6 per cent to $33.45.

Charter Hall has launched its third direct industrial fund, capitalising on the strong appetite for higher-yielding unlisted funds. The Australian dollar is trading at US87.08¢ at 5.59am AEST, compared with US87.85¢ at Tuesday’s local close. SPI futures are up 9 points at 5.59am AEST. The following stocks will trade ex dividend today: CTI Logistics, K&S Corp, Namoi Cotton, Nufarm, United Overseas Aust.


 

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




 
 
Stock of the Day – WDS Limited (HOLD)

WDS, the provider of specialist services to coal mining industry and pipeline construction business, reported virtuous FY14 results. The Company reported a 61% profit increase for year to 30 June 2014. As per the Company, it starts the next financial year with net cash of $18m, a $259m order book, $250m in submitted tenders for new work and an opportunity pipeline of work valued at around $1bn. 


Financial Highlights (Source – Company Reports)

Looking at the dividend, the Company announced a total dividend up by 27%. The Board declared a final dividend of 3.25 cents per share and a special dividend of 1.25 cents per share, both fully franked - paid on 25 September 2014. Thus the total dividends declared for the full year accounted to 9.5cps fully franked (7.5cps for FY13), representing a payout ratio of 90%. The Company will also be sharing trading update during the AGM in the month of November 2014.


Dividends in Cents (Source – Company Reports)

Based on the Company’s HY14 highlights, net profit after tax more than doubled from $3.49m to $7.39m with 34% rise in EBITDA to $18.03m. The earnings were primarily springing from WDS’ Energy Division with EBIT almost tripling from $5.5m to $15.2m. The order book of $375.97m rose 33.6% on pcp balanced across its diversified business model, i.e., WDS’ Energy and Mining businesses.


Group Earnings Summary (Source – Company Reports)

WDS witnessed long term debt of $6.27 million and total liabilities of $57.40 million, as of June 2014, which indicates a slightly better position than 2013.



Net Debt and Gearing (Source – Company Reports)

WDS also confirmed that the results from its Energy Division were a reflex of the work activity with CSG participants in Queensland through securing of new contracts. The Company announced the winning of $65m in work in its Energy division with Santos and Arrow Energy. Further, advanced APLNG project related work programs backed the Company’s revenue upsurge. For FY14, there was a 21% rise in revenue to $282.6m and earnings before interest and tax (EBIT) increased by 77% to $27.8m. The Company confirmed that this Division’s success is steered through organic growth, improved productivity and plant utilization, etc.

On the other hand, its Mining Division encountered a rough environment with respect to the slowdown in the Australian coal sector. Revenue went down by 27% to $86.3m and an EBIT loss of $3.8m for the year was reported. However, Mining Division was bestowed with the contract for the Eagle Downs Drift project ($142.8m) in December 2013. This amplified the workforce by one-third to help full production in the fourth quarter of FY14. The Eagle Downs Drift project is to be completed over approximately 2 years. In this regard, WDS also acquired two SLB300 Roadheaders for customization and subsequent use for operation in an underground coal mine. Another feather is the winning of the award of contracts at BHP’s Appin mine for supplementary labor and dyke driveage, which is expected to yield profits in FY15.

WDS has tenders submitted for ~$250m of work across both its divisions. Key aspects such as new contracts in Energy Division and turnaround in Mining Division, collectively, indicate that FY15 will see improved profits.


Image (Source – Company Reports)

As per the market analysis wherein a long term capital spend is forecasted for petroleum industry, WDS expects to illustrate capability with increased efforts, for example the up-and-running engagements with CSG proponents. It has also renegotiated enterprise agreements to adapt with changing market conditions. In mining sector, the factors which may play a role will be coal pricing shifts, change in long term demand for metallurgical coal, and so forth.


WDS Daily Chart (Source - Thomson Reuters)

We do note WDS’ position to have a healthy cash conversion capability and strengths stemming from its diversified portfolios which may promote further growth based on new contracts and projects, WDS may be a horse to hold on at this moment. Primarily, the external conditions coupled with WDS’ internal strengths may turn the tables in the long run. Thus, we recommend a HOLD for the stock at the current price of $0.315.

 

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