Jump to content

EHL.AX - Emeco Holdings


SpecOps

Recommended Posts

Thanks for the presentation.  I did notice the reduction in profitability for utilization (esp. in Chile) but that is where the market is today.  It is nice to have activists on your side.  BTW another merger proposal was announced from a more related company that rents construction equipment in Australia.

 

Packer

Link to comment
Share on other sites

  • Replies 182
  • Created
  • Last Reply

Top Posters In This Topic

http://www.smh.com.au/business/no-action-on-orionstone-deal-yet-recommends-emeco-20150409-1mgg22.html

 

Interesting article on the Orionstone proposal.

 

Orionstone are virtually an identical troubled large mining equipment supplier. If it was truly a merger of "equals" it would at least generate significant cost synergies.

 

Orionstone have large identical heavy mining fleet maintenance facilities within a stones throw of each other in Mackay (Queensland) and Kalgoorlie (Western Australia), within 5km of each other in Perth (Western Australia),  and within 30km of each other in the Hunter Valley (NSW).

 

You could gut some significant costs from a combined entity and reduce competition in key markets such as QLD where they are going head to head and attempt to distribute equipment to other markets.

 

Whether or not the price would be right for Emeco shareholders is anyone's guess though.

 

Will be interesting to see how it all unfolds.

Link to comment
Share on other sites

  • 4 weeks later...

Emeco posted a relatively upbeat Q3 update. Revenues are up 6% yoy and 8% qoq. Utilization has clearly gone up with Canada and Chile strong ans Australia improving. Cost-cutting seems under way as well.

 

In terms of potential business combinations, all options still appear on the table. They have extended the settlement date for the Rentco acquisition and it feels like it is not certain to go through. Also, they have apparently not yet decided how to handle Orionstone.

 

Looks like massive strategic uncertainty while the underlying business improvement can be felt.

 

Operational Update: http://www.emecogroup.com/upload/pages/150430_ehl_operationalupdate/150430_ehl_operationalupdate.pdf?1430350404

Corporate Development Update: http://www.emecogroup.com/upload/pages/150430_ehl_operationalupdate/150430_ehl_operationalupdate.pdf?1430350404

Link to comment
Share on other sites

  • 2 weeks later...

I am long and wrong on this one and think I'm relatively pessimistic.

 

http://www.bloomberg.com/news/articles/2015-05-13/goldmine-is-cheaper-than-sydney-house-as-boomtime-ends

 

It seems that Australia is littered with mining equipment going cheap.  It's very hard to see how Emeco can make decent returns with this glut of supply and the industry is reasonably fragmented.  Even with its proposed merger, it would still only be top 5 (i.e. 4 or 5) in the industry, so not much power.  There are competitors that are much less levered and in a better position. 

Link to comment
Share on other sites

If you listen Peter K.'s presentation, he makes the case that Emeco is in the niches (large trucks and excavators/diggers) where there is tight supply versus the small trucks where there is oversupply.  The dilutive acquisition has been delayed twice and the horizontal acquisition (Orion) appears to be front and center.  I think things are moving in the right direction.

 

Packer 

Link to comment
Share on other sites

I don't think its quite so bleak as being made out.

 

Their last release was actually very positive. Utilization was up to 75%, EBITDA was up quarter on quarter.

 

The activists successfully delayed (more than likely ended) the RentCo acquisition, and made Emeco publicly announce a $10m cost cutting program after they had gotten too carried away with the revenue side of the equation at any cost.

 

Emeco don't need to be a market leader or highly profitable for this investment to be hugely rewarding to shareholders, they simply need to be generating sufficient FCF to reduce leverage without dilution, that is the goal. You have to look at it in relative terms, it is a bad business model, but its priced for insolvency.

 

 

Link to comment
Share on other sites

I think the problem here is that they are not dumping equipment. And that merger seems a bad idea? Lot's of extra debt, for a 30-40m in synergies?

 

I think the original thesis was that they would slowly liquidate equipment between 20-40% discoutns on average, while generating some cash flows from operations over the next two years or so. But that does not seem to be the plan anymore. So purely based on operations, things would really have to turn up to get rid of that debt quickly.

 

If they did that, and got debt down to like 50m$, ebitda of 80m$, you would get a lot of upside. And you wouldn't need a recovery. At 4.5x ebitda, youd get 55c per share. But it seems the CEO is only interested in jacking up risk in stupid ways.

 

 

Link to comment
Share on other sites

I think the problem here is that they are not dumping equipment. And that merger seems a bad idea? Lot's of extra debt, for a 30-40m in synergies?

 

I think the original thesis was that they would slowly liquidate equipment between 20-40% discoutns on average, while generating some cash flows from operations over the next two years or so. But that does not seem to be the plan anymore. So purely based on operations, things would really have to turn up to get rid of that debt quickly.

 

If they did that, and got debt down to like 50m$, ebitda of 80m$, you would get a lot of upside. And you wouldn't need a recovery. At 4.5x ebitda, youd get 55c per share. But it seems the CEO is only interested in jacking up risk in stupid ways.

 

I'm no expert, but the Orionstone merger doesn't appear to be a "bad idea". Here's a quote from the Orionstone press release (http://www.orionstone.com.au/wp-content/uploads/2015/04/Press-release-Orionstone-proposes-combination-with-Emeco-8-04-2015.pdf):

 

Proforma net debt / EBITDA for the combined company would be 5.3x (pre synergies) which compares to Emeco’s net debt / EBITDA of 7.3x at 31 December 2014.

 

Unfortunatley Orionstone is a private company, so I can't find any financial information aside from whats in the release and I'm sure they are making things sound a little rosier than they are. When I look at Orionstone I see a company that operates entirely in Australia, so I understand how they can benefit quite a bit from the Emeco relationship, which will allow them to diversify their revenue stream. It looks like Emeco can benefit by lowering their debt ratios. It sounds like utilizations rates at both companies are good. Emeco needs to work on their EBITDA margins, but overall the merger sounds like a win-win? Can't know for sure since Orionstone is private and there are always unknowables. Black Crane Capital is also in support, which is good...

Link to comment
Share on other sites

Investor-man presented this at a meet up and I did some research. This is what I found and let me know what i'm missing.

 

REV                         $268,000

EBITDA                   $80,000

Current Assets         $141,958

Non-Current Assets $594,198

Total Assets         $736,156

Current Liabilities   $61,172

LTD                         $335,000 9.85% - no covenants

TOTAL DEBT         $396,172

Interest Expense   $40,000

MCAPEX                   $23,000

 

The thesis is that the non-current assets should be viewed as inventory and depreciation is overstated because in the past utilization was down and the equipment doesn't really depreciate when not being used. Theoretically if the company were to net out all the liabilities it would worth over $0.55/share when right now it trades at $0.11/share.

Bad former management and now activist involved

 

Please let me know me if I missed anything or if some of my numbers are off.

Link to comment
Share on other sites

  • 3 weeks later...
  • 2 weeks later...

Termination of Rentco Acquisition

 

http://www.emecogroup.com/view/investor-articles/150629_ehl_terminationofrentcoacquisition

 

Emeco Concludes Discussions with Orionstone

 

http://www.emecogroup.com/view/investor-articles/150629_ehl_emecoconcludesdiscussionswithorionstone

 

Happy about the first release, and neutral to lukewarm about the second - wish they had said something to the tune of, "margins have improved". I'll settle for, "As part of our ongoing business improvement program (Project Fit), measures have been implemented that are expected to realise a $14 million reduction in Emeco's cost base in FY16 with additional initiatives expected to achieve savings in excess of this figure going forward."

Link to comment
Share on other sites

Hehe thanks thepupil. Looked myself on IB smartphone app but couldn't find it. My windows application doesn't want to open anymore for some reason.

Anyway, seems like the debt barely budged while the stock took another hit these last few weeks.

Link to comment
Share on other sites

Ok thanks Packer. Do you add given it's now 1/3th the price you bought at initially? Or do you have a rule not to add past a certain portfolio percentage for these more speculative names? I'm not sure how I would handle it myself. TIA as usual. ;)

Link to comment
Share on other sites

It may be a good time but I have my allocation full.  I made an exception to my rule of not buying a stock of a company with distressed debt due to the lack of bond covenants and LT maturity.  If the bonds rallied I would feel better.  We will see.

 

Packer

Link to comment
Share on other sites

Hi, Packer:

 

So what's the debt market's concern here?

Seems the debt market indicates that the mining industry situation will become much worse (likely due to China further slowdown)?

I am from China so per my best knowledge now the situation in China seem (much) more dire than most media and ppl here believe

 

 

It may be a good time but I have my allocation full.  I made an exception to my rule of not buying a stock of a company with distressed debt due to the lack of bond covenants and LT maturity.  If the bonds rallied I would feel better.  We will see.

 

Packer

Link to comment
Share on other sites

  • 3 weeks later...

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now



×
×
  • Create New...