Investment Matters

Company news: Emeco

As we have advised in past editions of Investment Matters, a merger of Emeco with both Orionstone and Andy's Earthmovers has been proposed.  In conjunction with the merger, a recapitalisation (via a restructuring of the bonds and debt, and a small rights issue) is also proposed.

This week shareholders voted in favour.  After one bondholder initially rejected the proposal, they are now in favour.  The merger, recapitalisation and raising are therefore expected to go ahead.  Court approval is the final step required to make it formal.

The merged company will have significantly lower leverage, with an extended debt term.  It also materially reduces capital expenditure requirements for the combined businesses for the next five years.  Whilst Emeco shareholders have been diluted in the process, the net result is a whole business which is worth considerably more - which we assess has more than offset this dilution.

Operationally, since the announcement of this deal market conditions for mining rental equipment tightened considerably.  This is positive in relation to the outlook for rental prices of Emeco's equipment, and will have a material impact on the company’s revenue and profit. 

Additionally, Emeco will be a free cashflow machine (generating above 1.7cps in the first full year of the merger and 2.3cps in the second).