Emeco Update

Emeco has a reiterated Buy, High Risk recommendation and a share price target of $2.45 from sharemarket analyst Citi Investment Research. The stock has been sold off aggressively over the past week, and they believe this is due mainly to profit downgrades by other brokers. However they can find no reason to change our forecasts or view on the stock and there is no downgrade message coming from the company. Reasons for the other broker's downgrades include contract losses, weaker demand and freeing up equipment supply. The contract losses relate to the supply of gear to Rio Tinto in SE Qld where coal production is set to be cut due to lower demand from Tarong power station because of the drought. Emeco currently has 28 machines at the site, of which only 8-9 will be needed if the cut backs occur. To put this in context, Emeco has 1,000 machines in its rental pool. Given the typical 90-day warning on equipment returns, there is no impact on FY07E, and there is time/opportunity to redeploy the gear, probably at better margins (if it rains the gear may stay put). There has been negative news from the Coates Hire-owned Allied. This business is a poor cousin to Emeco, both in terms of quality of clients and state of the fleet equipment. As such, any read on the market is very specific to Allied. Furthermore it is bound to be suffering from the ongoing tight supply of tyres. Emeco is protected by its long term supply agreements with Goodyear, whereas Allied has always relied on the spot market.

Emeco Holdings Limited is listed on the Australian Stock Exchange (ASX) under stock code EHL. You can view their investor website here. EHL was listed on the ASX on 28 July, 2006. Alec Brennan is the Chairman of Emeco and Laurie Freedman the Managing Director. Emeco is involved in selling, renting and maintaining heavy moving equipment to customers in the mining industry in Australia and overseas. Find out the meaning of the recommendations in this primer. Browse for other broker recommendations. Check your charts and good luck with your share trading!