Last week, our little water recycling star performer Envirozel (EVZ), which we recommended in September last year as a solid buy at 19c, revealed its latest acquisition - Young steel construction private company, National Engineering - yet another stable, thriving business with an attractive operational record. National’s revenue contributions will bring EVZ to within $30m of its projected target of $100m per year revenue.
Following the announcement, EVZ Executive Chairman, Gordon McKern gave a most encouraging, almost fatherly presentation on Boardroom Radio.
Some of the points he made were:
- National Engineering is different from the previous two acquisitions as the vendors were not running the business. Positively, there’s a very competent general manager at National Engineering who is staying on.
- National doesn’t compete with existing EVZ businesses - and other EVZ businesses have a need for structural steel which National can provide.
- National’s location in Young, NSW now gives EVZ a geographic reach as far as Queensland.
- EVZ is maintaining its performance. 3.5 average adjusted EBIT purchase price will be paid for National - more or less on par with the other two. The purchase will be made with a combination of debt and cash - and there’s room for more leverage on the balance sheet. Commonwealth Bank is very supportive.
- Revenue is on track for $70m - 75m - Gordon suggested they will achieve $100m well before the end of 2007.
- At Young for ASX ann, Gordon addressed the National employees, offered employment, explained the deal to the workers - employees were very buoyant about the new owner.
- Gordon highlighted that one of EVZ’s main assets is now 370 employees, every one of them a skilled operator, - to him, the crux of the whole game.
We love his attitude, and his thoughtful, pragmatic approach to EVZ’s strategic acquisitions. Will the next acquisition be in Queensland?
EVZ closed on Friday at 59.5c - the new floor may become 56c. With bipartisan support for water efficiency measures, EVZ is in an excellent position to benefit from additional infrastructure investment. Wise Owl has an 80c price target in 2007 - it may even do better after its half yearly in our opinion, if it can increase the number of contracts it presently enjoys. We don’t see why it won’t, and will be watching it closely for more accumulation during the imminent tax loss scramble season.
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