Emeco Holding - Go Long ! Increased Mobile Fleet Utilization

Feb 1, 2019

Emeco is looking cheap at the moment with increasing Mobile Fleet Utilisation and Increasing bidding work in 2019. Owner operators looking to increase production are now more capital sensitive and will opt to hire fleets, as opposed to purchasing new equipment. This makes Emeco attractive in a sector that has undergone significant consolidation.

-Margins have also improved from 30% to 40% over the course of 2018
-Risks as always are commodity price down turns
-Important to also note that Fleets age and will need to be replaced, Owner operators in these instances may choose to hire instead

Fundamentals

P/E Ratio 26.28 (a little on the high side, but potential exists)
EPS $0.09
Earnings Growth --
Debt to Equity 304.50% (Risk is changes in interest rates, this could impact bottomline, however US Fed and RBA have signaled slow rise in interest rates)
Price to Book 4.48
Beta 1.18


Outlook
We are continuing to see high levels of activity and demand for fleet from our customers. We expect our fleet’s
operating utilisation to further increase throughout FY19, particularly in the second half.
The eastern region mining markets remain very strong, particularly in coal. We have actually transferred a few
assets from the west to the east in response to this strong immediate demand. Our national footprint gives us
the ability to mobilise fleet to where demand and returns are the strongest.
The western region utilisation is not as strong as the eastern region, hence the transfer of assets, however
there is a lot of bidding activity for projects commencing in the new calendar year. We are confident utilisation
rates in the west will significantly increase through calendar 2019.
Contract tenures are extending out, with two to three year terms becoming more common. To me, this is an
indication of the high confidence of our customers. Customers are taking a more cautious approach to capital
investment in mobile fleet and see Emeco’s rental offering as a favourable alternative. We expect this to result
in strong sustained demand for our equipment.

Mar 2, 2019

Note

After the Half Year results there was heavy selling as investors were disappointed by the expected profit results of $12 million and the decision by management to capital spend on new/used equipment.

In my opinion EMECO is still an attractive investment that is just at the beginning of another resource boom. It is well positioned to capitalize as the equipment market tightens. The capital spend in my view isn't too much of worry as the procurement is tied with existing Hire Agreements, which makes it safe investment for EMECO.

At current prices ($2.33) EMECO is very attractive. Target price $3.80 in 12 months

Mar 28, 2019

Note

Disappointing, will have to wait to see if management were right on their strategy, with more contract wins and tightening, perhaps only then will we see a return to it true value.