Company Update Where there's smoke... † Press speculation that Nylex is in play has received a further boost by news that the company has entered an agreement to sell AH Plant Hire to National Hire for $115m (subject to shareholder/banker approval).
† Given that AH Plant had increasingly been seen as a core part of the group, and talk of selling it had ended 12 months ago, divestment at this stage represents somewhat of an about-face. The identity of the purchaser is no major surprise given the common major shareholder.
† While the sale will create a large hole in operating earnings (30% out of EBIT for FY07E), the bottom line impact is likely to be much less because of the interest savings from cutting net debt from $132m to below $20m.
† The last remaining deterrent for a potential acquirer would appear to be the non-core auto businesses, which have been the cause of major write-downs and restructuring charges. Nylex has indicated that it is in discussion with "willing" acquirers and is hopeful of Nov'05 completion.
† Given the likely hole in earnings created by the loss of AH Plant and comments made by the company that current trading is difficult across most businesses, it is hard to mount a strong investment case until the future is more certain.
† However, with a break up valuation of more than $0.30 a share and increasing speculation of a takeover, it is worth hanging in there until the corporate angle plays out.
† No change to our Buy / High Risk (1H) rating and target price of $0.32.
NLX Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
