Found this one to be rather good, sorry if posted before but don't remember seeing it, I think it gives a great explanation and understanding of where the company is at and is going:
Industrea Limited: Strongly placed for high double digit growth based on Chinas demand for coal
Date: 7 April 2010 Contributed by Intersuisse
By Intersuisse
Investment Rationale
IDLs mining products include longwall mining equipment, Gas Drainage and Collision Avoidance Systems, both under- and above-ground Directional Drilling, Contractor Management, Mobile Asset Tracking and Driver Safety Performance Index, together with a range of flame-proof and explosion-proof underground diesel vehicles for moving people and equipment.
Customers include BHP Billiton / BHP Mitsubishi Alliance, Anglo Coal, Rio Tinto, Xstrata, Boeing, Cockatoo Coal and the major Chinese mining groups such as Jincheng, Shanxi and Shenhua. IDL is also a distributor for global mining suppliers Sandvik Voist Alpine (Scandinavia) and Tagor (Poland).
IDL's dominance of the mining equipment sector in China in the key areas of safety and productivity has driven its ability to win a steady flow of lucrative contracts to sell directional drilling and coal degasification systems and other equipment. IDL has a proven management and wide base of specialist expertise. We see clear prospects for long-term double digit growth, producing high cash flows.
Event
- The price has been languishing at 39-40. This is inappropriately low given the strong prospects for IDL and its continuing strong news flow of new contracts.
- We believe that the market is spooked by IDLs $52.2m convertible bonds.These are due for repayment on 28 March 2011 unless converted earlier at a price of 39. Originally $75m, for the Huddys purchase; $5m was converted last November and $17.8m was repurchased on 25 March from cash reserves.
- IDL has won over $164m international and domestic contracts over the last year. Its 1H10 result was promising, driven by very strong growth in mining equipment sales to China, offset by sharply reduced mining services income as expected, reflecting the impact of the GFC on the sector. Revenue slid just 3% to $141.5m and adjusted NPAT fell 28.2% to $17.7m. Income from mining services and equipment sales has already grown further, enabling the recent bond repurchase. Cash at 31 December was $14.3m after net operating cash inflow of $17.4m in 1H10; FY09 was $43m, FY08 $71m.
- A table of revenues, EBITA and margins was in our 2 March Buy, 40 report. Mining Services revenue of $58.5m is rebuilding (pcp $84.9m). Equipment and Technology sales at $82.3m were up 36%. EBITA margins were building at 26% and Mining at 22% is now recovering towards the pcps 39%.
- FY10 guidance is for revenue of $300-330m and adjusted NPAT of $48-54m, depending on timing of shipments and sales. IDLs adjusted NPAT is pre noncash amortisation, interest rate hedge movements and non-recurring items. Adjusted EPS for 1H10 was 1.96. EBITDA was $44.4m. Depreciation rose $2.0m to $10.4m. Finance costs of $2.3m were covered 14.7 times by EBITA. H2 margins will be higher with the increasing sales to China and awards of mining services contracts with Cockatoo Coal (begun Aug 09), Rios Mt Thorley mine and restarted initial operations at Xstratas Handlebar Hill, which could well ramp up further. H2 and FY11 will see all divisions perform well.
Impact
- We expect cash flow in the order of $65m for FY10, higher in FY11, and IDL to have the capability of repaying all or a good part of the remaining convertible bonds. IDL also aims to refinance its February 2011 senior debt before June, which could assist bond repayment. However, IDL is clearly on the growth path and we question whether it should not also take the opportunity of bond conversion to strengthen its equity base for further expansion.
- We have left our 2 March estimates unchanged. We have however reviewed the impact of nil, partial or full bond conversion/repayment. Both extremes attract: repayment leaves low cash and a P/E around 6.6x; conversion leaves surplus cash and a P/E around 7.5x. Our table implies a mid course.
Recommendation
We may upgrade our FY11 estimates later in 2H10. IDL recognizes the markets perception of a share overhang but, like us, sees its situation as adding flexibility. Whichever way events unfold, the P/E under-rates IDL, now raised to a Strong Buy.
Business Description
Industrea Limited (IDL) comprises a group of companies providing specialist mining products and services. Based in Brisbane, IDL has offices in Sydney, the Hunter Valley, NSW and Beijing and a product support centre in China to directly support its burgeoning activities there.
IDL acquired Huddys mining services business for $250m in November 2007. Huddys has run dominant mining and earth moving activities at Mt Isa for two decades. This diversified IDL earnings with long-term contracts. It also initially increased debt (and assets), to 125% debt/equity. But cash flow is strong. Its contract flow in China has been particularly strong and appears to have established IDLs reputation there. It adds to 2H10 and future growth as China works to improve productivity and safety in its coal mines. Equipment margins rose with the move to larger premises last July. Wadam Industries, bought in 2006, is in its 17th year of selling equipment to China, where it now has a local team over 30 people.
IDL launched its first Gas Drainage system in 1994 and Collision Avoidance five years ago and successive generation models keep ahead of competition.
