First impression...'ouch'.Had a skim read...'ouch'.Short term...

First impression...'ouch'.
Had a skim read...'ouch'.

Short term pain coming, no denying it. MAH will drop 25% tomorrow and hit 18c-20c with ease. Those who don't want to stick around will sell.

But when the dust settles, let's look at what we're left with as shareholders - a clean slate, a fresh face. Assuming expected contracts are awarded, the LEI sale goes ahead and the entitlement is taken up (i.e. the most likely scenario)...

* Net debt reduced to $19.5M
* Gearing at 4.9%
* $40M worth of construction equipment retained
* 1.23B shares on issue
* CC almost certain to go ahead. Having a fair idea of what goes on in the industry, established contractors do not start early stage services like MAH is doing and then get turned away without a chance to prove themselves running at full capacity (I've never seen it happen).
* Forecast FY14 NPAT of $70M, based on annualised PBT of $100M following on from 2H13 mining services
* FY14 EPS roughly equal to 5.8c
* Order book of $2.3B already locked in for two years away, FY15 onwards

This is a bold move. Some won't like it simply because the share price will drop tomorrow, but I fully support what the board are trying to achieve here. This is a significant de-risking of the company. MAH has consistently earned a 5% NPAT margin on its mining revenue, compared to <2% on its construction revenue.

The other day I mentioned that most established contractors in the industry (eg. DOW) trade with a PE of 12+. Say the market as a whole really has a grudge against MAH now and won't ever be able to trust it again (I wouldn't blame them) - they pay 6x FY14 earnings and not a cent more. That would be equal to 35c per share, a 100% gain on this RI offer at 16c.

Yes, it would have been nice to see shares placed at 22-23 cents instead of 16 cents, but on the other hand I look forward to being able to purchase some shares at such a cheap price. We are paying just 2.75x forecasted FY14 earnings at 16c per share! I will be taking up my full entitlement, I know that much.

Won't be posting for a few days. I can tell already that a few emotional holders will be wanting to vent their frustration and it will detract from logical discussion. To be honest I don't blame them if their intention was to make a quick buck out of the stock. Fortunately for those sticking around, we will enter the new year with a company that is far more fundamentally sound and far less risky.