Update: Ausdrill Earnings

Aug.28.14 | About: Ausdrill Ltd. (AUSDF)


Ausdrill reports a net loss on impairment charges.

This was expected in my original article, and later confirmed by the company.

This doesn't change the investment thesis as the company is free cash flow positive and trading at less than half its book value.

Ausdrill (OTCPK:AUSDF) has reported its financial results for the financial year 2014 which ended in June. As I expected these results weren't too bad, and I seemed to be right when I wrote in my last update on August 7th that it might have been the last opportunity to get in, as the share price increased by 30% in just two weeks before retreating a bit to 24%. The total revenue dropped by approximately 26% to $758M. This was widely anticipated as the mining sector experienced a slowdown and Ausdrill didn't escape from this reality. As there was also a $70M impairment, the net loss for the year was $39M. This sounds like a terrible situation to be in, but you should focus on the cash flow statement, which shows a positive free cash flow of $70M, which is just great and much higher than last year.

The net loss might surprise some people, but I'm absolutely not caught off-guard as I was already expecting an impairment charge in my original article and it was pre-announced by the company. As the company's working capital position still is a very respectable $275M, I'm not worried about the company's near term financial situation at all. Additionally, even after the $70M impairment charge, the book value still is $2.18/share which means Ausdrill is still trading at less than half the book value.

Ausdrill is trading substantially higher than when I wrote my first article, but I believe there's more room to run. That being said, you shouldn't immediately buy a position, and it could be interesting to wait for a further pullback. But one thing is clear. The moment the mining sector picks up steam, Ausdrill is in the pole position to benefit from it.

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.