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Why the Emeco Holdings share price crashed 20% on its profit report

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Earthmoving equipment hire company Emeco Holdings Limited (ASX: EHL) has seen its share price crash on the release of its interim results as the company showed weaker-than-expected growth. The Emeco share price is currently down 20.3% to $2.24.

Statutory net profit after tax came in at $11.9 million, up from a net loss of $0.3 million in the previous corresponding period. Still, investors had expected more, with brokers having forecast net profit for the full 2019 fiscal year in the vicinity of $70 million, which seems like a long shot after today’s results.

A brief summary of the company’s results is provided below.

  • $102.8m operating EBITDA, up 53.4% pcp
  • Operating EBITDA margin 45.8% vs 39.2% pcp
  • Operating utilisation 64% vs 57% pcp
  • Leverage reduced to 2.1x vs 2.6x last period

Much of the company’s growth came from two acquisitions, which helped drive a 159.8% increase in operating (non-statutory) NPAT. The results also benefited from increased operating utilisation and strong customer demand.

Margin expansion was driven by the contribution of high-margin earnings from an acquired company, new customer contracts and disciplined cost management.

“The outlook for the remainder of FY19 is positive. We expect strong market conditions to continue into 2H19, particularly in the Eastern Region, with increased bidding activity  in the Western Region for new projects expected to come online during 2019,” said Managing Director Ian Testrow.

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Returns as of 6th October 2020

Motley Fool contributor Cale Kalinowski has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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