Further to K54’s posting. HDX has a number of key tactical advantages which in my opinion positions it well for 2014, especially as many of its key clients focus on cost cutting within the coal industry (in no order) (i) it operates with and for many of the majors already (ii) Hughes is perceived as core partner in existing operating mines to drive efficiencies and improve productivity (iii) Hughes operates with a non-unionised workforce (iv) with the coal owners forced via the rail take-or pay contracts and zero prospects of commodity price increases, the simple answer for them to increase profitability is only by increased output to reduce their unit costs, which means more tonnage out which means more blasting and therefore someone has to drill the holes, (v) Hughes then has two potential revenue streams, either they supply the drilling crews themselves and rigs or if the mine wants to operate the rigs themselves then Hughes is well placed to sell them the RechD rigs direct and then pick up the servicing/maintenance of those rigs in the future, noting (vi) RechD rigs are cheaper than competitors CAT/AtlasC etc, with vastly superior delivery times, (vii) HDX purchased RechDrill when AUD was above AUD/USD parity, so the acquisition looks timely today, and with continued AUD/USD weakness will have nice FX gain on RechD’s sales converted back into AUD going forward and likely m-t-m of the value of the US operation (viii) HDX’s debt should get re-classified as long term after last year snafu on late filing (ix) HDX has on 2012 numbers a strong ROE at 33.9 eg compared to say BLY at 6, which is a strong indicator on bis model (x) strong commitment of sohp investors K2 & Invesco and Board Directors at 32c, with recent capital rasing(xi) good future prospects of increased third party sales of RechD rigs to other coal producing markets eg, Canada, Indonesia. So in all 2013 numbers should/are expected to be sound/strong based on coy guidance but importantly 2014 looks likely to stronger again with all the pieces in place and RechD contributing full 12 mths to group. Anyway trust this helps K54
HDX Price at posting:
20.5¢ Sentiment: Buy Disclosure: Held
