The Emeco Holdings Limited (ASX:EHL) share price gained 27 per cent in May after the rental equipment provider to the mining sector made a major acquisition.
Emeco bought Matilda Equipment, a national rental equipment business for an enterprise value of $80 million. The implied acquisition multiple, based on Matilda’s recent run-rate, is a dirt cheap 3.3 times operating EBITDA.
The Ausbil Microcap Fund is amongst a number of fund managers holding Emeco shares. Others include Pie Funds, and it’s the largest position in the Glennon Small Companies Ltd (ASX:GC1) LIC.
In the Ausbil Micocap Fund May performance update, the fund said Matilda Equipment compliments Emeco’s existing fleet by providing low hour, late model mining ancillary equipment with incrementally higher margins.
The acquisition was funded by a $90 million capital raise at 25 cents per share. Emeco’s shares currently trade 40 per cent higher at 35 cents.
Emeco says mining customers are averse to capital expenditure and rental equipment is attractive to both miners and contract miners.
The previously debt-ridden company says it has significantly reduced leverage, simplified the business and enhanced market position and scale through transformational acquisitions and a focus on operational excellence.
Net debt was $407 million as at 31st December 2017, with deleveraging remaining a priority.
In a recent presentation at the Macquarie conference, Emeco said it expected growth in FY19 to accelerate with the Matilda Equipment acquisition, something they say positions the company to take advantage of improved market conditions in the mining sector.
Source: Company presentation
The Emeco share price is up 368 per cent over the past 12 months, making it the top performing S&P/ASX 300 index constituent over that time period.
Fellow mining services companies have also had a strong run over the last 12 months as the mining cycle has swung upwards.
The NRW Holdings Limited (ASX:NWH) share price has soared 131 per cent higher in the last 12 months, and the Seven Group Holdings Ltd (ASX:SVW) share price has gained 80 per cent over the same period.
By comparison, the ASX 200 index has increased by just 4.2 per cent in the last year.