Investment Matters

Company news: Emeco

An article appeared in the Australian newspaper this week regarding Emeco looking to a US hedge fund for recapitalisation finance.  Many clients hold a little over 1% of their Australian share investments in Emeco.  The company responded noting that it continues to evaluate alternatives which could improve its financial and operational position.  But it noted that nothing was at the stage that would require disclosure to the market.

We are relaxed about such prospects.  The positive value to equity holders of a potential debt restructure was apparent in December, when the company bought back US$52.3m (>10%) of its own debt/bonds for less than US$34.2m cash.  This was beneficial for shareholders, as the difference between the book value of debt (or face value), and what was paid in cash, is essentially value transferred directly to shareholders (in that case $52.3m-$34.2m=$18.1m of profit which equates to 3cps, the current share price).

Emeco's debt can be reduced quickly and materially by such deals, which, given a large fixed asset base, would strongly boost the value of net assets for equity owners.  

Emeco notes that while it is considering options there is no urgency to act as its debt is not due until 2019 and it is generating positive cash flow to pay interest. 

If they do land upon a workable and appropriate proposal, I am sure shareholders will be informed, and we will be in a position to assess it on your behalf.