I'm struggling to determine thoughts on where the price goes...

I'm struggling to determine thoughts on where the price goes from here.

I bought in at 50c and 45c, so looking good, so at this stage am inclined to let it run, but am concerned at how quickly it could reverse.

Prior to the upgrade with the half year results, I had been working on an EV of 6x EBIT as a fair value for a company in this sector and of this size. Some may argue more is fair, but I feel the risk and impact of individual contract mishaps or losses makes this reasonable.

Based on the top of 2013 guidance of $8-9M EBIT and allowing for some growth in debt, this gave a value of approx $1.50. I then allowed for EBIT growth in 2014 to $11.5M based on then known growth plans, which after allowing for some debt repayment in 2014 gave me a value of approx $2.

The 2013 earnings upgrade to EBIT $9-10M with the half year results took my value to perhaps $1.75 for 2013. Presuming that the upgrade was due to EBIT growth being pulled from 2014 to 2013, the increase of 2014 earnings and value over 2013 would be less than prior forecasts, so say $2-2.15 value for 2014.

So excluding the Hofco acquisition and share issues, I think the shares are getting pretty fully valued at current levels.

The details for Hofco are not substantial. Based on earnings multiples and stated earnings in the asx releases, the acquisition price does look reasonable. However as with any business of this size, I would guess earnings can be volatile so earnings multiple can be a dangerous way to value it. I also wonder how easily management decisions can impact earnings short term, i.e. to support or inflate earnings prior to a sale.

Looking at Hofco's balance sheet, plant and equip is $7M vs EBIT of >$5M. It concerns me that their customers will continue to lease equipment at current margins/prices, if they could simply buy it for less than 18 months rental proft margin. Most of their customers look to be sizable enough to buy any plant and equipment if it makes financial sense to do so. I've done no research on how hire businesses are usually valued, but it seems dangerous to me that intangibles will be double the value of the equipment held for hire, and that the acquisition cost will be 3x the value of the hire equipment held.

Additionally, the placement will divert significant value to new investors based on the issue at $1.05 vs the value of up to $2 I had prior to the acquisition. Frustrating to see a Director involved in managing and underwriting a process that negatively impacts existing shareholders so significantly.

So based on fundamentals, to me the stock looks fully valued ex Hofco and associated share issues. If Hofco is more likely being overpaid for which seems to be my gut feel, then value is reduced and it is time to sell. That said, given my low entry point and current strong upward momentum, I am inclined to hold for a little bit longer but will sell at any sign of trouble.