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Summary

  • Ausdrill has announced it will take a $60-90M impairment charge, mainly on its goodwill.
  • This is absolutely not unexpected as I already wrote the goodwill down to zero in my previous article.
  • Now the share price has dipped again, this might be a good opportunity to buy some shares being sold by weak hands.

Last month, I wrote an article on Ausdrill (OTCPK:AUSDF) stating that the company was trading at just a fraction of its book value and that it had a very big cushion which would withstand a harsh impairment charge. Now Ausdrill has announced it effectively is taking an impairment charge of approximately $60-90M on its assets and predominantly on the value of its goodwill. This was caused by the continuously weak iron ore market and 'continued market challenges'.

This doesn't come as a surprise as everybody agrees and could have seen the commodity markets weren't exactly in recovery mode. That was also the reason why I gave some attention to the book value -specifically mentioning the possibility of an impairment charge - of the company to see if there was some kind of cushion. As I concluded that the company was trading at a discount of 65% to its book value of $826M and I already made an allowance by putting the value of the goodwill ($72M) at zero, which is exactly what will happen now. So this impairment charge definitely is something I had anticipated and the company's book value will drop by less than 10%.

Ausdrill's share price immediately increased by 20-25% within the first few weeks after the article had been published, but doubters now get a second chance to invest as the share price has dipped below a dollar again on news which shouldn't have surprised anyone. I remain cautious but would like to emphasize again that even after the maximal impairment charge of $90M the discount to the book value will still be 60%.

Disclosure: The author is long AUSDF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Update: Ausdrill Takes An Impairment Charge