Mining equipment specialist Emeco Holdings will spend around $90 million on new assets to contribute to earnings and cash generation in the 2020 financial year.
The company plans to fund the purchase through a combination of $50 million in cash flow in the second half of 2019, $20 million in finance leases and a $20 million deposit that has already been paid.
Emeco managing director Ian Testrow said the purchase would help the company “meet strong ongoing demand and drive continued growth”.
“We currently have very high utilisation in these asset classes and already have rental agreements in place for a majority of these assets,” Testrow said. “This disciplined asset purchase is expected to achieve high-teens returns through its life.”
The company said the $90 million expenditure would result in a one-off impact to capex in the second half of the 2019 financial year.
The announcement led to a 28.5 per cent dip in Emeco’s stock price from $2.81 to $2.01 on Tuesday, though the price had recovered slightly to $2.43 by yesterday afternoon.
Emeco is involved with heavy earthmoving operations across several regions of Australia, particularly Western Australia, New South Wales and Queensland and supplies equipment from companies such as Caterpillar, Komatsu, Liebherr and Hitachi.
The company posted strong first-half financial results on Tuesday, including a year-on-year boost to net profit after tax of $159.8 million ($31.7 million).
Earnings before interest, tax, depreciation and amortisation (EBITDA) was up 53.4 per cent year on year to $102.8 million.