What Happened to UGL Ltd’s Share Price?
Shares in utility service provider UGL Ltd [ASX:UGL] enjoyed strong outperformance of today’s directionless Aussie stock market. UGL closed up more than 2% to hit a price greater than at any time since the stock collapsed in November 2014.
Why Did This Happen to UGL Shares?
UGL has rallied since Tuesday morning’s news of a deal to operate and maintain BP’s 17 fuel terminals across Australia. The new contract is worth $190 million over its initial three-year term and includes options to extend the arrangement.
The news has buoyed investors’ hopes that UGL might parlay this contract into a broader and more profitable arrangement with BP. What’s more, takeover talk has swept the engineering sector this week.
With UGL’s share price bouncing off a 14-year low, plenty of investors seem to be viewing this stock as a bargain with room to improve.
What Now For UGL Ltd?
You should note that UGL still faces problems. The firm recently took a $175 million provision on a contract related to the Ichthys LNG project. But this was just an estimate — UGL is yet to negotiate the final outcome with the client.
Problem contracts can cause mid-cap engineering contractors like UGL to implode. That means — despite this week’s good news — an investment in this stock is still a risky proposition.
For deeper analysis on the Aussie stock market and global economy, keep an eye out for my essays in Money Morning — Australia’s biggest free daily financial e-letter.
Cheers, Tim Dohrmann
Editor, Money Morning