The company was priced on a high PE (20x) and thus the market...

The company was priced on a high PE (20x) and thus the market was not anticipating any nasty surprises.

In this sort of market (correcting bear market) such downgrades are punished severely - Given their February updates and now a 10-15% downgrade, the market is left wondering if management knows what is going on (or are they just reading the tea leaves).

(Huntleys Buy recommendation (obviously before the profit downgrade) was just over $12.)

TSE company credibility is now on the line - to come out and say that you still hope for 30% profit increase after a downgrade is a brave call by the company - if they miss this they will get put through the grinder (again).

Just remember that there are a lot of short term forces that don't care about the share price - just profit by movement (in any direction). The share price is likely to whipsaw whilst the bean counters reassess the company (and the shortsellers have their day).

J.

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May 16 (Bloomberg) -- Transfield Services Ltd. dropped by a record 22 percent in Sydney trading after the Australian provider of maintenance services to miners said profit may grow less than analysts' estimates because of currency gains and higher costs.

Net income before amortization probably will be between A$105 million ($99 million) and A$110 million for the 12 months ending June 30, compared with analysts' expectations for profit of between A$115 million and A$120 million, the Sydney-based company said today in a statement to the Australian stock exchange. Transfield's net income before amortization last year was A$103.8 million, said Liz Jurman, a company spokeswoman.

Gains in the Australian dollar are hurting companies that earn revenue in dollars and pay costs in local currency. Sydney- based Transfield earns 19 percent of its revenue in the U.S. The Australian dollar gained 11 percent last year and may crimp earnings by as much as A$10 million, Transfield said.

``To come out with this order of magnitudes of downgrade is disappointing,'' Alistair Reid, an analyst with JPMorgan Chase & Co., said by phone from Sydney. ``I don't think the selloff in the shares is overdone.''

The stock fell as much as A$2.90, or 22 percent, to A$10.35 and traded at A$11.29 as of 12:53 p.m. Sydney time on the Australian stock exchange, the biggest drop since it started trading in May 2001. Transfield has declined 20 percent this year, dropping its market value to A$2.1 billion. The shares had fallen 3 percent before today, compared with a 7.1 percent decline for the ASX/S&P 200 Index of Australian stocks.
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Egoli:
Transfield Services Limited (TSE) has updated its expected earnings for the 2008 financial year. The company said its NPAT, pre amortisation, was expected to be in the range of $105 to $110 million for FY2008, compared to the market consensus range of $115 to 120 million.
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Meanwhile, the company expects its global services business to deliver growth of at least 30% at the EBITA line this financial year with the outlook for FY2009 continuing to be positive.

CEO Peter Watson said he was confident the 2009 financial year would continue to deliver strong organic growth fuelled by recent major contract wins and significant growth in Flint Transfield Services in Canada.

“We have just agreed with our relationship banks to a one-year extension of our tranche of debt maturing in July 2008,” Mr Watson added.

“Transfield Services has invested in building a robust platform for sustainable global growth to create long term shareholder returns. I reiterate that we remain comfortable with our positive outlook for FY2009,” he said.

The company said it traditionally has a strong final quarter yet it was being impacted by a strong Australian dollar, rising input costs and clients deferring work until the next financial year.

“The strengthening Australian dollar over the reporting period will result in a reduced contribution from international businesses on its consolidated numbers,” Transfield said.

The company said it expects the impact to be around $8 to $10 million of EBITA for the full year on a constant dollar basis. At the NPAT line the impact will be partially offset by the translation of amortisation, interest and tax at the higher exchange rate.

Investment in future sustainable global growth will also have an impact this financial year, following an accelerated implementation of its North American growth plan and the creation of our new Major Projects Group.

The company said this will position it to capitalise on the first mover advantage in performance based services models in the key US and Canadian markets, as well as the increasing investment required in infrastructure in the domestic market.

As previously advised, the company has fully integrated Horizon and Whelan into US Maintenance (“USM”), incurring redundancy costs during the period. Additionally it will realise the consequent synergy benefits of this in FY 2009.

As at 1029 AEST, shares in Transfield Services were down $1.75 or 13% to $11.50.