jawn619 Posted July 29, 2015 Share Posted July 29, 2015 http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01644687 operational update. Pretty good, 75% utilization, $65M revenue Link to comment Share on other sites More sharing options...
investor-man Posted July 29, 2015 Share Posted July 29, 2015 http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01644687 operational update. Pretty good, 75% utilization, $65M revenue Thanks for posting. There is no mention of margin improvements, which is what needs the most work, so I'm not as pleased as I would be. Also the the thought of a mining equipment company venturing into the software space leaves a bad taste in my mouth. Hmm... Link to comment Share on other sites More sharing options...
jawn619 Posted July 29, 2015 Share Posted July 29, 2015 http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01644687 operational update. Pretty good, 75% utilization, $65M revenue Thanks for posting. There is no mention of margin improvements, which is what needs the most work, so I'm not as pleased as I would be. Also the the thought of a mining equipment company venturing into the software space leaves a bad taste in my mouth. Hmm... NP. They mention some slight margin improvements from cost cutting. Looking at some of their previous half year reports, they were able to generate $35M of EBITDA off $120M of Revenue, implying a FY $70M EBITDA off $240M of revenues. They have around $30M per year after paying interest expense, but they probably have to invest some into capex and don't actually have much "free cash flow" unless utilization picks up more. Link to comment Share on other sites More sharing options...
Max Alpha Posted July 29, 2015 Share Posted July 29, 2015 http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01644687 operational update. Pretty good, 75% utilization, $65M revenue Thanks for posting. There is no mention of margin improvements, which is what needs the most work, so I'm not as pleased as I would be. Also the the thought of a mining equipment company venturing into the software space leaves a bad taste in my mouth. Hmm... There were several references to margins in there that I thought were very positive. 1) Margins are improving as a result of revenue growth (+21% q-on-q) and operating leverage; 2) $14m of cost savings expected in FY16, which they state does not include the aforementioned operating leverage contribution to improved margins or any effect from the one-time charges encountered in FY15, 3) Expecting greater cost savings beyond FY16 as part of the cost reduction program (may be to do with committed leases on facilities etc). They are at 74% utilisation at a seasonal low and didn't suffer a major fall unlike previous years. They announced several new small contract wins. The major piece of negative news is the loss of a noteworthy iron ore contract. This however is off a pretty low base for the WA business, I expect the loss of the iron ore contract will be well and truly offset by improved utilisation across the other business units. With QLD approaching 85% and NSW at 94% utilisation, hopefully they will be able to redeploy some of these WA assets. Still leveraged up to their eyeballs so very risky, but a little activism has whipped them into shape and they appear to be doing as well as I could hope for given the tough climate. I think the market is waiting to see a turnaround in the net debt figure when they release earnings. Link to comment Share on other sites More sharing options...
investor-man Posted August 20, 2015 Share Posted August 20, 2015 http://www.businessspectator.com.au/news/2015/8/20/construction-and-engineering/emeco-appoints-new-ceo Link to comment Share on other sites More sharing options...
60North Investments Posted August 27, 2015 Share Posted August 27, 2015 Annual results out, thoughts from the board? Doesn't look particularly good, at least not yet. Massively levered, hopefully they can deliver on i) improving margins while keeping utilisation at least where it is now and ii) delever. http://www.emecogroup.com/view/investors/asx-releases Link to comment Share on other sites More sharing options...
Grotifant Posted August 30, 2015 Share Posted August 30, 2015 Here is how I view it: They are guiding for a mid-70m EBITDA for 2016. Take out AUD 40m in interest payments and around AUD 35m for capex and the only FCF that they will receive is from their asset disposal program. Last year that came to AUD 24.8m of disposals and they are expecting a similar number for FY16. This would allow for around AUD 20m+ or so to delever the business. Not a hell of a lot compared to AUD 364m net debt (after deducting AUD/USD hedge asset). If they could buy back their own bond in the low 70s that might lead to up to a AUD 30m reduction in debt (that really is my bull-case for FY 2016). On their conf call they indicated that they are aiming for AUD 80-100m of FCF over the next 3 years (I presume that includes asset disposals). If they can actually achieve that and reduce the net debt by mid 2018 to the AUD 250-300m range, they might have a shot at refinancing the bonds in 2019 at more attractive rates. In this case it's hard to see the stock price not up at least 3-5x times by then. However, net debt is around 5x EBITDA (assuming mid-70s in FY16) so any hiccup in the operational biz in the meantime or further deteriorating in the commodities space might cause them serious trouble. Best to view the equity price as pure option premium and size any positions accordingly in my opinion. Disclaimer: I own the ordinary shares. Link to comment Share on other sites More sharing options...
tombgrt Posted August 30, 2015 Share Posted August 30, 2015 CEO resigns, lower than expected EBITDA, China slowdown picking up pace, extremely leveraged, no positive asset sales surprises, ... Doesn't look like this one is going anywhere but sideways/down for now unless the activists/new ceo pull some tricks out of their sleeves. Are people that bought at higher prices staying in because market is wrong or because loss aversion kicked in? Link to comment Share on other sites More sharing options...
yadayada Posted August 30, 2015 Share Posted August 30, 2015 Yeah i sold out at 12c. I should have sold earlier. The thesis was a slow liquidation, not renting out most of your equipment at low rates. If they sold like 30% of their equipment at 20-40% discounts, and used that to pay off debt and refinance, it could have worked out nicely. But asset disposals are way too slow. I guess inside ownership is too low, they just want to gamble and keep getting a paycheck. Link to comment Share on other sites More sharing options...
writser Posted August 30, 2015 Share Posted August 30, 2015 Yeah i sold out at 12c. I should have sold earlier. The thesis was a slow liquidation, not renting out most of your equipment at low rates. If they sold like 30% of their equipment at 20-40% discounts, and used that to pay off debt and refinance, it could have worked out nicely. But asset disposals are way too slow. I guess inside ownership is too low, they just want to gamble and keep getting a paycheck. The implicit assumption being that it was easily possible to do so but management is terrible. Is that how you look at this in hindsight? I sold last year at $0.23 because huge writedowns in Indonesia suggested that selling equipment close to book value in a distressed market was more challenging than I initially assumed - and thus that the margin of safety disappeared. Do you still think that was an overly simple approach given the information we had at our disposal back then? Link to comment Share on other sites More sharing options...
yadayada Posted August 30, 2015 Share Posted August 30, 2015 They sold equipment at book value in H2. And if you would read up on the market a little bit (or read some transcripts of quarterly call), part of their equipment would sell for about 30-50% discounts, and other equipment would sell at book value. The thesis would still work if management would sell at a discount of 30-40%. It would greatly reduce interest costs. Net debt is about 330m$ right now subtracting derivatives and net cash and net working capital. SO if they sold 150m$ of equipment at 40% loss (instead of trying to rent out as much as possible at shitty rates), net debt could be reduced to 150-200m$ within a few years, with much lower interest costs. Then you got a business that generates 20-30m$ of FCF. Also to add, I seriously doubt the last CEO knew wtf he was doing. With that acquisition proposal, polluting shareholders, and not even getting a very good deal. He didnt really seem like a guy who had shareholders interest at heart. You really sound in a lot of posts like you got something stuck up your ass or something. I mean that post is just dripping with anger and passive aggressiveness. I think it is a lot more productive if we just discuss these things without getting all hostile. Link to comment Share on other sites More sharing options...
Hielko Posted August 30, 2015 Share Posted August 30, 2015 They sold equipment at book value in H2. You realize that they first write down their equipment before it is moved from PP&E to assets held for sale? So if they subsequently manage to sell their assets held for sale at book value that doesn't mean anything. In 2015, they moved A$43.7 million of idle assets to assets held for sale while they recognized an A$23.9 impairment loss. Using a little bit of basic math and I get a 55% discount to book value... I think it's amazing that you still believe your own narrative despite the fact that every new data point shows that your thesis was and is wrong. Just read this thread starting from page 1... Also to add, I seriously doubt the last CEO knew wtf he was doing. I'm sure the CEO before that had the same problem... Link to comment Share on other sites More sharing options...
writser Posted August 30, 2015 Share Posted August 30, 2015 Hielko: you are a bit too negative. The 2015 writedown included $5.9m on assets held for sale previously impaired in 2014 so the impairment for 2015 was only $43.7m / $18m = 42%. Link to comment Share on other sites More sharing options...
Hielko Posted August 30, 2015 Share Posted August 30, 2015 Hielko: you are a bit too negative. The 2015 writedown included $5.9m on assets held for sale previously impaired in 2014 so the impairment for 2015 was only $43.7m / $18m = 42%. Thanks for the correction, missed that. Not directly very positive that they wrote down the assets held for sale even further though. Believe the 2014 discount was already sizable enough. Link to comment Share on other sites More sharing options...
yadayada Posted August 30, 2015 Share Posted August 30, 2015 very large equipment is half their assets and is selling at a small discount. Smaller equipment is selling at 40-60% discounts. Earlier this year they said on the conference call that large pieces were selling close to book in the market. Also the mother of all commodity collapses happened this year with just about every commodity coming down hard, and they took about a 40% discount? Not that terrible. And they are not selling their best assets. And my point still stands, in H1 they sold equipment without having to discount them further. You were arguing writser, that apparently all their equipment would now be discounted by 55% or whatever it was after that Indonesia shutdown, which did not happen in H1. So even in a pretty much worse case armageddon scenario it did not happen. The discount was only 42%.. So if the CEO would have been smarter (stupid of me to assume), he would have sold more equipment when he could in H1 (at a 20-40% discount) to get as much cash, to refinance those bonds as quickly as possible, instead o f inserting them into unprofitable segments. And actually try to do more of those 14m 2016 planned cost cuts in financial year 2015 already. Even if you were right, it is really irritating to follow and remind people of their mistakes in this passive aggressive belittling 'told you so!' tone. And if you feel the need to do it, actually adding something interesting to the discussion usually helps too. Link to comment Share on other sites More sharing options...
writser Posted August 31, 2015 Share Posted August 31, 2015 They sold equipment at book value in H2. You realize that they first write down their equipment before it is moved from PP&E to assets held for sale? So if they subsequently manage to sell their assets held for sale at book value that doesn't mean anything. Yadayada: do you understand this? That the statement you started your previous post with was incorrect? That in fact they wrote down the assets they decided to sell this year by 42%? If so, how is it possible that you missed this a couple of hours ago? Didn't you read the footnotes in the annual report? Don't you understand the difference between valuation of PPE and held for sale assets? Am I misunderstanding something? I agree with you: this post is belittling, passive-aggressive and dripping with anger. I'm an asshole. But this is pretty basic stuff man, and it's quite relevant. We should be on the same page here before we can disagree on the rest :) . Link to comment Share on other sites More sharing options...
investor-man Posted August 31, 2015 Share Posted August 31, 2015 They sold equipment at book value in H2. You realize that they first write down their equipment before it is moved from PP&E to assets held for sale? So if they subsequently manage to sell their assets held for sale at book value that doesn't mean anything. Yadayada: do you understand this? That the statement you started your previous post with was incorrect? That in fact they wrote down the assets they decided to sell this year by 42%? If so, how is it possible that you missed this a couple of hours ago? Didn't you read the footnotes in the annual report? Don't you understand the difference between valuation of PPE and held for sale assets? Am I misunderstanding something?C I agree with you: this post is belittling, passive-aggressive and dripping with anger. I'm an asshole. But this is pretty basic stuff man, and it's quite relevant. We should be on the same page here before we can disagree on the rest :) . I would prefer that this forum remain a place where a mistake can be made and pointed out in a respectful manner. Cheers! Link to comment Share on other sites More sharing options...
writser Posted August 31, 2015 Share Posted August 31, 2015 I got a bit annoyed when it turned out I was discussing a company with somebody who, as far as I understand, has been completely misinterpreting the financial statements of said company for over a year, lost money because of it, while lambasting other posters (who tried to talk him out of his position) to 'read up on the market' and 'delve into specifics'. What's the point of delving into specifics if you don't understand the basics? But yeah, maybe my post was a bit too sarcastic. Sorry yadayada! Don't take it personal. Link to comment Share on other sites More sharing options...
jawn619 Posted September 10, 2015 Share Posted September 10, 2015 Just did a case study on General Growth Properties. I think studying general growth might give some insight into Emeco. www.raritancapital.com/casestudy/ggp/ http://faculty.chicagobooth.edu/joseph.pagliari/files/IS/GGPCaseStudy.pdf Link to comment Share on other sites More sharing options...
jawn619 Posted September 10, 2015 Share Posted September 10, 2015 Currently Emeco has total assets of around $700M and liabilities of $480M. I don't know how bankruptcy works in Australia but let's assume laws are similar to the U.S. and imagine a couple of scenarios. in 2015 Emeco was cash flow break after maintenance capex without interest costs. It is disposing of equipment just to sustain the interest on it's $365M of debt. Debt comes due in 2019 and the worst thing that can happen is the operating business does not improve(or does worse) and the company has to continue to dispose of equipment(maybe at a discount to book) to pay it's interest costs. Let's say they enter Chapter 7 bankruptcy. A trustee is appointed to liquidate and pay back $450M of liabilities. Shareholders get the rest if there is any. This number ranges from $0-220M. Currently the equity is trading for $35M. Let's say they enter chapter 11 bankruptcy. The operating business will have to improve and $365M debt has to be restructured. Unlikely that both will happen. Let's say the company sells off $35M in equipment each year just to pay interests costs and 2019 comes around and the business stays at breakeven. Then Emeco's balance sheet will look like $600M of assets with $480M of liabilities. With asset sales earnings power will decrease and let's say that decreases earnings by another $75M. Then emeco will probably have to file for bankrupcty where shareholders only get their money back if the company can liquidate their assets at book. I'd almost prefer if Emeco filed for chapter 7 right now and shareholders try to get whats left after liquidation. Disclosure: I am long shares of Emeco Link to comment Share on other sites More sharing options...
portfolio14 Posted September 11, 2015 Share Posted September 11, 2015 I don't know how bankruptcy works in Australia but let's assume laws are similar to the U.S. and imagine a couple of scenarios. I think while the principles are the same, the mechanics is different. In Australia, the court is seldomly involved. Usually, it's the secured creditors (eg. banks) driving the process. I did a quick google and this gives a good overview: https://legalvision.com.au/difference-receivership-administration-bankruptcy-liquidation-impact-creditors/ Link to comment Share on other sites More sharing options...
tombgrt Posted October 7, 2015 Share Posted October 7, 2015 Black Crane and First Samuel keep adding shares. Black Crane upped it's position by almost 7 million shares in just two weeks. I picked up a small position yesterday with some other commodity winnings. :) Link to comment Share on other sites More sharing options...
portfolio14 Posted October 8, 2015 Share Posted October 8, 2015 Hi jawn, How did you work out 65-70% book value? What data point did you use to estimate the 2nd hand prices of their equipments? Given that the mining servicing companies are failing one by one, I would imagine there is an oversupply of 2nd hand equipments on the market. There is just no buyers. No? Didn't go into much detail but uploaded a quick excel of a few possible scenarios. Came to a quick conclusion that if Emeco goes into bankruptcy, if they can liquidate and get at least around 65-70% of the book value of the PPE equity holders will get their money back. Upside assumes they can liquidate for book, or they can turn the business around. But If in bankruptcy secured creditors drive the process, it's a lot scarier for equity holders, as I imagine they're willing to take more of a discount on the equipment. Link to comment Share on other sites More sharing options...
60North Investments Posted October 31, 2015 Share Posted October 31, 2015 Q1 update, utilization up YoY to 75% (though operational utilization is lower). $15m of debt paid down (unless they've paid more than the September amount), $9m OCF, sales +12% and EBITDA margin 24% or about $13m for the quarter. In order to reach the $70m EBITDA guidance for the year they need to pick up the pace to $19m of EBITDA per quarter. Glad to see EBITDA margins up and sales both up, as that was worrying that they wouldn't able to raise margins without declines in sales. Just one quarter though. http://www.emecogroup.com/upload/pages/151019_ehl_firstquarteroperationalupdate/151019_ehl_firstquarteroperationalupdate.pdf?1446085524 Link to comment Share on other sites More sharing options...
physdude Posted November 21, 2015 Share Posted November 21, 2015 Some depressing reading on Australian mining equipment - http://www.abc.net.au/news/2015-10-28/heavy-machinery-prices-slashed-at-auction-mining-downturn-bites/6892966 Link to comment Share on other sites More sharing options...
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