Half-on-half comparison sees ALS's underlying net profit down 33% to $68 million, as the demand from its core material and energy division sees more pain.
The half year numbers did not provide specific guidance numbers, just an outlook statement clearly showing that the fourth quarter remains difficult to forecast, given the impact of the traditional Christmas shutdown.
I remain short in ALS Ltd for the following reasons:
- The Material and Energy divisions are likely to see further downsides. Discretionary spending in exploration and field development is slowing globally and demand for lab testing services are directly impacted by this decline.
- Tax rates are also etching out profits, as the company sees a return from the divestment of the Reward Distribution business.
- On a multiple basis ALS Ltd remains elevated, even after falling for most of 2014. At 20.1 times earnings it is still trading at a premium to peers (peers range from 14.6 to 17.9 times earnings). If volumes in materials and energy were to return, the price would be justified. However, on current market conditions, this looks unlikely.