Australia | Aug 21 2006
By Greg Peel
National Hire (NHR) is now the country’s third largest equipment hirer, with a 7% market share behind Coates Hire (COA) with 24% and Emeco (EHL) with about 12%. Over recent years the company has been doing some acquiring.
Founded in 1981, National Hire now operates under its own name as well as “National Hire the Cat Rental Store”, “Allight” and “AH Plant Hire”. EBIT has increased significantly from $2m in FY03 to $34m in FY06.
Austock analysts liked what they saw from the FY06 result. They suggest that forecast risk going into FY07 is now much lower, and expect the stock price to push towards $2.00. They have set a 12 month target of $2.15, up from $2.10 previously, and retain a Buy recommendation. They also note NHR is trading on 11x FY07 compared to Coates at 13x.
SB Citigroup analysts had been unsure on NHR, but having met with management post the result their confidence has been restored in “the growth strategy and management’s ability to deliver”.
Citi notes a lot of the increase in FY06 equipment utilisation and margins came from AH Plant, which NHR acquired back in January. With an FY06 fleet utilisation still at 60%, Citi sees considerable upside potential in existing businesses. The analysts have increased earnings forecasts by 15% in FY08 and 12% in FY09.
Citi still believes the non-residential construction cycle, which has been in upswing of late, will flatten in FY08, but this will not stop NHR posting a year of solid growth of around 13%. Citi was concerned with the company’s spending on acquisitions, but now agrees the strategy has paid off.
The broker has upgraded its recommendation from Hold to Buy (high risk) and has lifted the target from $1.89 to $2.30.
Austock suggests that Coates is still the preferred stock in the hire game, but that National is a riskier venture which offers potentially greater reward. Citi believes National looks a lot like Coates did two years ago, such that where Coates has reached a maturity in its growth cycle, and offers subdued upside, National is still catching up.
National Hire closed at $1.95 on Friday.