The Emeco Holdings Limited (ASX: EHL) share price has been one of the best performers on the local market on Thursday.
In afternoon trade the equipment rental company's shares are up 11.5% to $2.07.
This means they trail only Nearmap Ltd (ASX: NEA) and Sundance Energy Australia Ltd (ASX: SEA) on the All Ordinaries index today.
Why is the Emeco share price racing higher?
Emeco is holding its annual general meeting in Sydney today.
Ahead of the meeting, the company released its annual general meeting presentation which included its guidance for the first half.
According to the presentation, Emeco has had a strong start to FY 2020.
Managing Director and Chief Executive Officer, Ian Testrow, revealed that the company is currently expecting first half operating EBITDA to be between $118 million and $120 million.
This represents growth of 14.8% to 16.7% on the operating EBITDA of $102.8 million achieved in the prior corresponding period.
Another positive is that further earnings growth is expected in the second half. Which should lead to a solid full year result for Emeco.
What are the drivers of its strong performance?
The release explains that growth in revenue and earnings in FY 2020 is both from rate and utilisation improvement on its existing fleet. Also assisting is the additional earnings generated by the growth assets acquired in FY 2019.
The Western Region has secured new work in iron ore and gold projects. Whereas demand in the Eastern Region continues to be robust. Particularly from the metallurgical coal market.
The growth assets that Emeco acquired are now all working across various projects and remain on track to generate $25 million in EBITDA this financial year. Management advised that these growth assets have expanded its earnings capacity, and do not replace any of its pre-existing rental fleet working at existing projects.
Another big positive was the company's commitment to deleveraging and reducing its gross debt.
It expects to generate strong cash flows in FY 2020 and beyond. This will allow it to reduce its leverage to 1.5x at the end of FY 2020. It will then target leverage of 1x by the end of FY 2021.
