Company news: Emeco
As speculated in last week's Investment Matters, Emeco (in which many First Samuel clients have a small holding) announced late on Friday a merger with both Orionstone and Andy's, combined with a recapitalisation via a restructuring of the bonds and debt of all players, and a small rights' issue.
The combination of all the parts of this agreement finalises a complete rebuild of Emeco (which may change its name), and sets it up for a strong future.
Essentially this deal takes away any potential risk for Emeco equity holders from its debt coming due (in full by 2019 currently but now 2022 under this deal), without giving up any of the upside from the industry returning to normalised rental prices. Shareholders will own a smaller piece of a bigger, safer 'pie'.
We believe "new Emeco" will reduce its debt quickly in coming years and the business will generate $1.7c per new share in cashflow (after all costs) in FY-18, and >$2cps in FY-19 and beyond. We see this level of free cashflow as being sustainable into the future without any improvement in industry conditions.