News: EHL Emeco Holdings updates on recapitalisation and merger with Orionstone and Andy'S, page-16

I have only had a glance at the history of this company - so I accept that my impressions could easily be wrong.

This co only made an ROA of about 4 to 7.5% from 2008 to now, excluding one year at 11.7% - which sticks out. Some of the assets were goodwill, which has mostly been written down now. Maybe there will be more goodwill on the balance sheet after this deal? So if their debt is at 9.5%, they look like they are treading water. There is a very skinny book value in this, and I am not sure there will be any NTA.

The cashflow sounds good to me, but I wonder if this company will hit a reliability problem from aging equipment in 2022, and still have a mountain of debt. Obviously if utilisation sticks at under 60%, you would hope the gear will have a longer life, but competitors (with an OK balance sheet) will be buying gear with embedded technological advances in the near future as well making EHL less competitive even if the fleet is not worn out. So the cashflow will probably not be indicative of profitability, even if depreciation is overstated.

Also the Illustrative financial scenario might not make sense, if there is a pile of free cash flow as stated. FY19 to FY21 has a cash interest expense of 35 to 45m the top end of that range would mean virtually no debt at all has been paid off with the fcf, if you think about the interest rate etc. Is this some sort of red flag embedded in the presentation? Whereas about $200m could have been paid off based on the fcf.

Seems high risk to me. The major benefit to shareholders is time value I suspect - hope for a boom of some sort to sort out all the problems, before the problems eat the equity etc. Can anybody see that I am missing some key ingredient?