Mining equipment supplier Emeco hits earnings targets but shares slump
Shares in mining equipment supplier Emeco Holdings have for the second time this year slumped on the announcement of results due to misunderstandings about a $90 million purchase of new equipment.
In February Emeco shares lost a quarter of their value after it surprised the market by announcing a $90 million investment in trucks and dozers in its interim results.
Today its shares fell more than 10 per cent after it reported an annual profit of $33.7 million, a sixfold increase on the previous year.
Emeco managing director Ian Testrow said he understood today’s drop was due to no explicit reporting that the new fleet would produce the promised operating EBITDA of $25 million. He said as the new purchases were distributed throughout the fleet their results were not reported separately.
Operating earnings before interest, tax and depreciation for the 12 months to June 30 were $214 million, exceeding the increased guidance of $211 million to $213 million released in June that saw Emeco’s shares jump almost 15 per cent.
The company rents almost 1000 heavy vehicles to the mining industry.
Mr Testrow said leverage, as measured by net debt over operating EBITDA, had been reduced to 2, 12 months ahead of plan.
“We hit this target notwithstanding cash-funding a considerable investment in strategic growth assets this year,” he said,
“In a capital intensive business, we also have a very dedicated focus on return on capital to ensure we are efficiently utilising capital.”
Emeco achieved a return on capital of 21 per cent, when calculated as operating earnings before interest and tax as a proportion of average capital employed.
Mr Testrow said the Osborne Park-based contractor wanted to use operating cash flow to further reduce debt this financial year.
“With strong demand in iron ore and gold projects in the west, we are also excited by significant opportunities to enhance our commodity diversification,” he said.
Emeco was down 24.5¢, or 10.6 per cent, to $2.075 at 12.00pm.
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