Investment Matters

Company profit reporting season wraps up

This week Emeco, TZ Limited and Threat Protect wrapped up company profit reporting season for our clients. 

Threat Protect released a good result.  Assisted by recent acquisitions, revenue increased 58%, and a net profit of $1.7m was delivered. 

The result showed a step-up in H2 (vs H1) revenue for Monitoring - with this division being the major contributor to the company's earnings.  This bodes well in relation to the growth outlook for FY-18.

The company is actively pursuing further acquisition opportunities in the monitoring sector, so as to leverage the company's current infrastructure and add to future earnings growth.

 ***

Emeco's result is three-quarters of the old Emeco business, plus the fourth quarter of the combined Emeco / Andy's / Orionstone business (include a debt restructure and capital raising).  So the numbers in the table below are pretty messy, and what is really important is what the fourth quarter looks like, excluding the business combination related costs.

Source: Emeco

Firstly, to macro factors.  Demand is increasing - as shown by the utilisation trend above.  Commodity price outlooks are stable to positive (except for a decline in the elevated metallurgical coal price), and production forecasts are for growth over the years 2018 to 2021.   Additionally, the equipment market is tightening (reducing inventory, longer lead time for components and equipment, increased equipment prices), meaning margins need to and will increase.

Operating earnings before interest, tax, depreciation and amortisation (EBITDA) was $83.5m in FY-17.  The Q4 EBITDA was $29.5m but was self-impacted by one-off costs associated with preparation work on the fleet obtained from Orionstone and Andy's.  Additionally, $15m of annual cost synergy savings are expected with the combined group.  Based on First Samuel's analysis, we assess the company can comfortably deliver an EBITDA of $185m+ for FY-18.

Furthermore, with declining interest costs and depreciation costs (a major impact for essentially high asset / capital value companies such as Emeco), a positive profit figure is forecast for FY-18.

***

TZ Limited results, although a loss, showed a continuing improvement in the underlying trend.  This is especially in relation to revenue growth, and EBITDA.  We understand that the company is now cash flow positive, with the next step being to make a net profit.  Product sales / orders on hand point to a positive start to FY-18.

Due to project delays in H2 of FY-17, some revenue and associated earnings moved into FY-18.  Gross margins improved due to a more favourable business mix.  Cost saving initiatives are underway (e.g. rental costs, manufacturing) and the company is motivated to leverage the company's technology to achieve a successful FY-18.