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Emeco share price on watch after acquisition, HY20 update

Tristan Harrison

Emeco Holdings Limited (ASX: EHL) shares went into a trading halt yesterday after announcing an acquisition and giving a FY20 half-year update.

Emeco’s Australian acquisition

The company announced that it has entered into a binding agreement to acquire Pit N Portal Mining Services and Pit N Portal Equipment Hire for an enterprise value of $72 million before adjustments for surplus working capital and other customary purchase price adjustments.

The $72 million will be paid for with $62 million of cash, from a capital raising, and $10 million of Emeco shares to the vendors.

The capital raising will raise $65 million at a share price of $2.07 per share, a 10% discount to the last closing price of $2.30.

Pit N Portal specialises in the provision of hard-rock underground mining equipment and services to the Australian underground mining sector. Core operations include rental equipment as well as mining services and maintenance solutions for underground mines across Australia. It has the biggest underground equipment rental feel in Australia with over 100 pieces of specialised underground mining equipment.

The acquisition price represents a multiple of 3.6x FY19’s operating earnings before interest, tax, depreciation and amortisation (EBITDA) and is accretive for earnings per share (EPS) on an FY19 pro forma basis after the transaction has been completed.  

In FY19 it generated revenue of $101 million and EBITDA of $20 million with growth expected in FY20 with new project and scope expansion opportunities. It has a “solid” tender pipeline, particularly in Western Australian based gold, nickel and base metals projects.

Emeco is attracted to the commodity diversification into gold, more than doubling its gold exposure revenue from 12% to 27%, becoming the second largest exposure.

Emeco Managing Director and CEO Mr Ian Testrow said: “Pit N Portal allows Emeco to leverage its current core capabilities and expand into a new market. The underground mining sector is undoubtedly growing and this represents an attractive adjacency for Emeco, providing Emeco with a solid platform for growth.”

FY20 half-year result update

Emeco also announced that it has achieved an FY20 half-year result in line with previous EBITDA guidance provided at its AGM in November.

Revenue is up 10% over the year to $246 million. Operating EBITDA grew 16% to $119 million and operating earnings before interest and tax (EBIT) rose by 12% to $67 million. Its operating EBITDA margin has increased to 48%, up from 46% a year ago due to improving rate utilisation and operational efficiencies.

Net capital expenditure for the first half was $49 million with free cashflow of $24 million. Cash flow is expected to improve significantly in the second half as working capital recovers.

Finally, Emeco said it had further improved its leverage with the net debt / operating EBITDA ratio of 1.77x at 31 December 2019 and it’s on track to reach 1.5x by the end of FY20, it’s aiming for 1x by FY21.

The post Emeco share price on watch after acquisition, HY20 update appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020