Tessa attended the meeting virtually. Seems that NPAT is only about break even so far this year. Was hoping that momentum from second half 22 might have carried over a bit. But operating revenue and operating profit were said to be up 38% on the same period last year. I guess depreciation from a now capital intensive business is hurting the bottom line, but free cash flow is presumably healthy enough.
Some emphasis was given to how slowly the US is developing. There was a hint of a possible order from North Dakota which might finally get the ball rolling there, but we seemed to be being cautioned that we shouldn’t expect too much from the US in the short term, and that it is “difficult”.
Mention was made of a possible aspiration to raise capital to boost growth/reduce debt, but they feel hamstrung by the low share price. So they are trying to fund new equipment for the hire business mainly from existing cash flow, while aspiring to keep gearing at 30-35%. This strategy limits us to incremental growth…I think they might like to be more ambitious if circumstances allowed. Chairman suggested current market cap is not consistent with NTA, and observed that the share price has only fallen on very low volume, such as a 600 shares sale that reduced market cap by about 15%.
Chinese lock downs are impacting on supply and presenting challenges in fulfilling significant orders.
The fatal accident was touched upon without any new information. Presumably a decent fine is in the offing at some point.
My take was that they are grappling with a variety of challenges, but are managing to “hold the line”. Things aren’t deteriorating, but not improving much either. I think we need a couple of favourable developments to help launch things a bit, such as sales in the US, supply constraints clearing up, or a successful recapitalization to boost rental growth. Darren made mention of an aspiration to grow revenue to around $2 million per month, up from $1.2 million to 1.3 which “doesn’t really cut it”. if the share price were to improve, I feel they may look to get a cap raising done in pursuit of the growth they want (and to keep debt to desirable proportions).
Overall, the sense was “we’re not seeing much improvement yet, it’s kind of “steady as she goes” but we are hopeful of improved performance in a couple of year’s time”.
Personally, I don’t think there’s a lot to look forward to in the short term, but things might turn around considerably on a five year time frame once some key impediments are hopefully alleviated.
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SRH Price at posting:
12.0¢ Sentiment: Buy Disclosure: Held
(20min delay)