Macmahon Holdings' losses from a disastrous Pilbara rail project, which led its managing director to quit, are likely to hit $40 million, according to broking analysts.
The civil and mining contractor refused to forecast the size of the expected shortfall from the unfinished earthworks contract on Rio Tinto's Hope Downs 4 railway when it shocked the market on Wednesday with a profit downgrade of up to $47 million.
While Macmahon also blamed deferrals of new projects, analysts suggested that anticipated losses from Hope Downs 4 would account for most of the pullback.
A research note from Nomura estimated the contract loss at $30 million to $40 million, while Deutsche Bank gave two scenarios that assume either a $40 million or $47 million blowout.
Macmahon's net profit forecast had been for a 20 per cent increase from 2011-12's $56 million net profit. That has been slashed from about $67 million to a range of $20 million to $40 million. Analysts are forecasting $20 million to $30 million.
Nick Bowen quit as managing director and Macmahon's share price was savaged after the extent of the rail project's problems became known.
After losing nearly 40 per cent of its value on Wednesday, the company's shares fell another 5 per cent yesterday to 31¢ after brokers slapped sell or hold recommendations on the stock. Price targets range from 23¢ to 40¢.
Nomura's Paul Graham said Macmahon should trade at a deep discount because of repeated problems in construction and the continued near-term risk of the Hope Downs 4 contract.Although new managing director Ross Carroll is respected by analysts, the fact that he came from within Macmahon's ranks has been criticised. That Mr Carroll was chief financial officer when nearly $50 million had to be written off another rail project in 2010-11 has added to the doubts.
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