RQL - Resource Equipment Ltd (was RGD)

[lewinsky]

I notice that RGD received a "please explain" from the ASX the other day.

They are worth a look.

Their MD, James Cullen came from PCG- a company that was involved in the hire of scaffolding. It was taken over in one of the best takeovers in terms of looking after minority shareholders that I can recall.

He knows the hire business and has a good track record.

This MAY (big may) be another IMD which was a ten bagger a while back.

Early days but definitely keep you eye on this.

PCG made me enough for a few "cold ones" down the local- to quote that legen from the past-Robbo.

Cheers

LEW.

[COLIN]

Refer also to #33 by Whatsup, on "Shovel Suppliers", for comment re RGD.
Options (RGDO) are a great way to go, with this one.

[whatsup]

Colin, Did you ditch your IFT's and buy RGD's

[whatsup]

Have a read of the chairmans report from the AGM , makes good reading considering this is a change of direction company.IMHO RGD will gets its building blocks in place and be a good growth story in a couple of years out $1.00 here we come in 2011.

[COLIN]

Colin, Did you ditch your IFT's and but RGD's

Yes, I am now fully quit of IFTWB's.
And am I glad that I bought some RGDO's, at 10c! Should have bought more, of course!
Thanks, Whatsup.

[Lizard]

Hi Lewinsky,

Thanks for bringing this one to my attention. I remember following PCG and Jamie Cullen, although not sure I ever actually held any. RGD looks like a good business and a pretty astounding growth rate to achieve in this environment.

One thing I am conscious of with hire business is that sales growth requires asset purchases. Currently RGD is growing at a rate beyond what I think it is likely to be able to sustain without new funding - depending on the rate of tax payable (probably nil for at least the next 3 years based on losses available) and degree of debt employed (possibly constrained for a few years), I'd estimate the possible rate of sales growth to be 15-30% without raising new capital. Not certain that they will have to raise cash this financial year - may be able to get by with a combo of cash from early options exercise, increased debt and fire-sale asset purchases. But I suspect one of the main reasons the owners might have been prepared to sell into a public listing is that having a cash hungry growth company will be helped by having access to raise new equity on market.

Taking that into account, it is a bit difficult to come up with a set "value", since any business that builds growth around dilution has a feedback loop from the share price that can spiral the valuation upwards or downwards.

I think it is likely to be some time (if ever) before RGD would be a pick for an "income" share. However, in a market short of growth prospects, it at least provides that prospect - provided the resource sector doesn't enter a slump. I'd say possible buy up to 45cps at present.

[whatsup]

Hi Lewinsky,

Thanks for bringing this one to my attention. I remember following PCG and Jamie Cullen, although not sure I ever actually held any. RGD looks like a good business and a pretty astounding growth rate to achieve in this environment.

One thing I am conscious of with hire business is that sales growth requires asset purchases. Currently RGD is growing at a rate beyond what I think it is likely to be able to sustain without new funding - depending on the rate of tax payable (probably nil for at least the next 3 years based on losses available) and degree of debt employed (possibly constrained for a few years), I'd estimate the possible rate of sales growth to be 15-30% without raising new capital. Not certain that they will have to raise cash this financial year - may be able to get by with a combo of cash from early options exercise, increased debt and fire-sale asset purchases. But I suspect one of the main reasons the owners might have been prepared to sell into a public listing is that having a cash hungry growth company will be helped by having access to raise new equity on market.

Taking that into account, it is a bit difficult to come up with a set "value", since any business that builds growth around dilution has a feedback loop from the share price that can spiral the valuation upwards or downwards.

I think it is likely to be some time (if ever) before RGD would be a pick for an "income" share. However, in a market short of growth prospects, it at least provides that prospect - provided the resource sector doesn't enter a slump. I'd say possible buy up to 45cps at present.

Liz... most if not all of RGDs contracts are medium to long term and can be financed by the cash flow of those contracts against the either leasing or purchase of equiptment needed to service the contract in the first place.

[whatsup]

Col...,Lew...,Liz..., up over .40 today , $ 1.00 + here we come !!

WOW options at .20 !!! go you beuat,bueat,baeut, whatever!!!

[lewinsky]

It is good to see a move up for RGD today.
The points that Liz raise are very valid. I really value the research the Lizard does before she posts.
There is undoubtebly going to be capex to grow the business. However I believe they have the capacity to do this through a relatively ungeared Balance Sheet and the fact that based on their growth they will be able to internally fund from operating cash flow.
The level of tax losses available should also assist in the next two years.
I have classified this as a sleeper for me and like IMD and TOX I am looking at a three year horizon for the business to be grown.
PCG took two years and was a four bagger for me.
IMD took four years and was a twenty bagger.
TOX speaks for itself- speeding ticket today.
Two good things are J Cullen has a positive track record and they are not reliant on finding something in the ground.
If this is a $1.50 in three years, I'll be happy.
As Mick "big lips " Jagger sang- Time is on our side.

LEW.

Thanks to Colin I am holding both shares and oppies.

[COLIN]

Thanks to Colin I am holding both shares and oppies.

Good on ya, L, for buying the ops. I am just a little puzzled, though, as to why you haven't got your total exposure in them? Given your stated confidence in the coy's future, and given that there is no premium element in the current options price, and given that a 10% gain in the price of the heads is accompanied by a parallel 20% gain in the price of the options, why would you want to forego the leverage gains to be made from the latter?

[lewinsky]

Colin,

The answer is very simple.

I am a member while you are a senior member boardering on guru.

You are quite correct in your observation.

So I get half a tick for picking up on RGD??

Cheers

LEW.

[COLIN]

Colin,

The answer is very simple.

I am a member while you are a senior member boardering on guru.

You are quite correct in your observation.

So I get half a tick for picking up on RGD??

Cheers

LEW.

I guess "half a loaf is better than no bread" so, yes, half a tick for that - and a full tick for humility!

"Approaching guru status, eh?" I had no idea...................! Aw, shucks!!! Gives one a lot to live up to.

The status system works on quantity of posts rather than quality, of course - but we do try to post only we have something meaningful to say.

Back to RGD/O: I note that the buying orders far outweigh the selling orders, so this should help to propel the price further upwards, for at least a little while.

Good luck. I'm tempted to add further to my holding but I mustn't put too many eggs into this pot of gold. And I'm very conscious of the constraints that their funding position places on business growth.

[whatsup]

Up again and still climbing, options too- ( sort of ) !!

[lewinsky]

Hi Liz,

The 45 cents has been hit today so a 36% gain in a week. This reeks to me of another IMD or PCG. They will make a profit and push this back into capex and growing the company. Maybe a couple of acquisitions and then start paying dividends.
I am now holding a mixture of ords and options.

Lew.

[COLIN]

A single buyer is looking for over 400,000 of the options, at 20c.

[Lizard]

Hi Lewinsky,

Getting cheaper again. As expected, capex is a bit of a drain, but largely getting by with capital from listed and unlisted options plus HP debt.

Was a paragraph in the HY report that left me slightly cautious on them (and probably reaction to resource tax will not be helping at present either):


It should be noted, however, that a number of recent project opportunities are experiencing longer than expected lead times and delayed decisions and this may restrict growth in the third quarter of this financial year

Quite a lot of listed options to convert by 31 Dec this year, so looks like some are converting now and perhaps selling while they are in the money - doesn't look like much liquidity for selling the options themselves in any quantity. May weigh the share price down for a few more months unless they report unexpectedly strong results and outlook.

[COLIN]

I did quite well out of the listed options (RGDO). Sold half when the price had doubled but hung onto the rest for a bit too long and only sold them last month after they had been weakening for some time and it seemed that they were not going to spring into life again in the reasonably near future. I agree with your summation, Liz.

[Lizard]

Just had a look at the result. Not much to add from previous comments on the thread - more or less as expected in my view.

I still rate as okay investment up to 45cps which makes for a capacity organic growth rate and 25% discount - if anything, I think growing too fast would be the danger in this environment when capital is expensive to come by. However, I don't hold as suspect they will be unable to resist opting for higher growth rates at the expense of diluting existing holders within the next 12-18 months.

[macduffy]

I've been keeping an eye on these for a few months now. Missed out on buying - tried to be too cheap! - but still interested.

I take your point, Liz, about the capital costs of this type of business. The good news of course is that RGD are currently lightly indebted with no bank debt and financing via HP on equipment. Still, something to be watched.

Good to see that profits increased at a higher rate than revenue - admittedly, the numbers for 2009 were pro-forma given that 2010 was RGD's first full year in its present form.

Still on my watchlist.

[lewinsky]

Hi MacD,
I think that RGD is a more interesting share than SIP.
I am a supporter of James Cullen who gave shareholders in PCH a great return, and negotiated a very good sale on their behalf.
There are a number of other things that took my eye from their presentation.
Large tax losses available.
The only debt is HP liabilities which appear to be covered from operating cashflow.
Capex for next year is largely covered by the exercise of options.
Market especially on the East Coast has room to grow.
I have a holding and view this very much like a TOX or an IMD. A share that will tick away under the radar and in 2 to 3 years time should double in price.
IMD and TOX are both unsexy shares. Clearing of Toxic Waste and Supplying mud for drill holes. Yet they were both 20 baggers for LEW.
Clearing water from drill sites-fits the unsexy category.
As I kept telling Monica, sometimes it passes to look past the quick thrill, that can cause stains and pains and look longer term for gains.

Cheers
LEW

[foodee]

Big volume and over 10% rise today.
Anyone know what is going on?

Cheers

[lewinsky]

RGD shares hit 50 cents on friday, and the CEO presented to the AGM.
The presentation is worth looking over.
Significant revenue growth in the first four months of the year.
Low gearing which will be improved by exercise of options.
Excellent contracts with siginficant mining companies.
Capex likely to be met from options cash and ability to borrow from capacity in Balance Sheet.
Excellent Managing Director with good track record.
Tax losses available.
Expect this one to continue its climb.
Another IMD in the making Liz.

Cheers

LEW.

[COLIN]

RGD shares hit 50 cents on friday, and the CEO presented to the AGM.
The presentation is worth looking over.
Significant revenue growth in the first four months of the year.
Low gearing which will be improved by exercise of options.
Excellent contracts with siginficant mining companies.
Capex likely to be met from options cash and ability to borrow from capacity in Balance Sheet.
Excellent Managing Director with good track record.
Tax losses available.
Expect this one to continue its climb.
Another IMD in the making Liz.

Cheers

LEW.

Yes, very encouraging. I bought back into the options a few weeks ago, and will probably convert as the option price is tending to lag the heads.

Lew: Could I suggest that you change the thread title to pick up their new code - RQL. Thanks.

[whatsup]

Yes, very encouraging. I bought back into the options a few weeks ago, and will probably convert as the option price is tending to lag the heads.

Lew: Could I suggest that you change the thread title to pick up their new code - RQL. Thanks.

Have held options for .09 a intend to convert, great future run by good management.

[lewinsky]

Hi Colin,

Lew: Could I suggest that you change the thread title to pick up their new code - RQL. Thanks.

Colin, I agree with your request, and have tried, but making the change appears as hard as taking an Indian test cricket wicket.

I see there is an option to change it into linear mode, too scared to try that.

Good to see the SP up to 52.5 last night.

LEW.

[Lizard]

In halt pending a material capital raising.

Odd timing since would have thought they would be picking up some cash from expiry of listed options.

Also, presumably the options are in halt as well - which is a bit tricky considering the last day for trading listed options is the 22nd and the halt may not be lifted until 23rd. Tough if there were any holders without the cash to exercise (there look to have been 18m still unconverted at last notice).

At least cap raising should be "modest" (based on agm presentation) and current share price/market cap should mean acceptable level of dilution.

[COLIN]

Lizard: I share your surprise as to timing.

Converted my options a few weeks ago. I have found that, as options exercise dates approach, the prices of these tend to run short of the relative heads so, if holders don't intend to convert, they should sell several weeks before ex date, as a general rule.

[lewinsky]

Hi Liz,

That trading halt has come out of left field,especially at the time of option holders exercising.

As you have poinyed out in your earlier posts, they will be capex hungry for a while and hopefully this requirement for extra $ is to support this growth.

The first three months trading were well ahead of last year, so their half year result will be really interesting.

lew

[modandm]

cap raising at 49c total of $12m - not much of a discount to recent sp or close at 55c.
"following strong demand which is expected to contine" "for capex programme" "additional funding through options, operating cashflow and modest debt"

As a potential investor this sends a good sign about what management think the company is worth. Some 9m funds raised through a placement and a further 3m through a SPP. After placement fees placed shares are probabally being sold for 52c assuming a 4-5% placement fee.

Also mention of a potential acquisition 10-14m to be funded 60:40 shares cash. This is not a certainty but due dilligence is being performed and it will likley be a small private seller so on history is likely to go ahead. Based on this ratio this could use about $4mill of cash with some following earnout being met.

[mamos]

What do you think they will do in FY11. They will have to increase profit signficantly to get decent EPS growth from the increased dilution.

Acquisition looks good. Especially if purchased on private company multiples it should be strongly accretive.

I wonder how much the East coast operations have been ramped up and whether they have had the scale to take full advantage of the flooding in the mines there.

End game could be a buy-out, similar to PCH, but lets hope this is not for a while.

[COLIN]

In demand today. Possibly linked to Qland flooding, with the need for mine pumping equipment.

[lewinsky]

RQL has been climbing steadily over the last few days, maybe the result of the Queensland flooding.

The SPP at 49 cents looks a lot more attractive now.

I am looking forward to seing their half yearly results. At he Annual Meeting they were way ahead of 2010 for the first four months of the year.

Maybe we will see this push through the $1 mark this year.

LEW.

[COLIN]

RQL has been climbing steadily over the last few days, maybe the result of the Queensland flooding.

The SPP at 49 cents looks a lot more attractive now.

I am looking forward to seing their half yearly results. At he Annual Meeting they were way ahead of 2010 for the first four months of the year.

Maybe we will see this push through the $1 mark this year.

LEW.

Yes, having a great run, Lew. Q'land mine flooding opportunities must indeed have something to do with it - or even just the market's perception that they will gain extra business as a result - as I had expected the price to be under a bit of downwards pressure during the SPP offer period. I also expected the coy to come out with a comment on the Q'land situation and any ensuing business increase.

[modandm]

RQL under pressure with most of the market over the past few days. I have been looking to get in since Xmas and watched it soar over 60c and to nearly 70c with dismay. Lets see how it closes today - currently at 60c - anyone want to pick the bottom for me?

[modandm]

I sold my holding on Monday, and took up the SPP offer that closes today. So I'm hoping 49c is the bottom :-)

I think that this may be one cause of the weakness - you are not alone im sure. Did you apply for the 15k entitlement?

[macduffy]

Still kicking myself for missing out on buying RQL a few months ago.

Still like them and may buy on the (hoped for) uptrend.

[modandm]

Still kicking myself for missing out on buying RQL a few months ago.

Still like them and may buy on the (hoped for) uptrend.

I feel the same on a number of shares that doubeld or more last year. Best advice is if you like the company be patient short term(days) but take action short term (weeks) before you kick yourself (after months). Ie don't be too greedy trying to buy low if you believe in the story. By no means buy in with the daytraders when a stock is running though either - buy on down days.

Now if only I could follow my own advice.

[modandm]

im on board finally at 60c - just a small parcel of 10,000.

Good luck to all holders.

[drillfix]

Still kicking myself for missing out on buying RQL a few months ago.

Still like them and may buy on the (hoped for) uptrend.

Looks good MacDuff.

Would wait for the Hourly chart to turn upward on that one, although I dont presently like the current daily and needs time to breath or to test 58c or so for maybe a bounce? Of course depending on market conditions as well.

[modandm]

Looks good MacDuff.

Would wait for the Hourly chart to turn upward on that one, although I dont presently like the current daily and needs time to breath or to test 58c or so for maybe a bounce? Of course depending on market conditions as well.

problem with these stocks is if you wait for the bounce you miss 10%... Anyone trying to time these things - good luck to them. As I say find stocks you like medium term prospects be patient and pick up at reasonable levels. If it falls to 50c now buy another 10k. It's fallen from 73-60c in a week... thats nearly 20%.

[drillfix]

Yeah good point there modandm.

But really, I guess it depends on what position you are in, or what type of trader/investor you are and with what targets.

Some just trade the swings and couldn't care about the medium to long term, some just trade the day or even a quick scalp perhaps, and then as you know, some will hold for long term.

Guess no matter what stock it is, time will always present opportunity at one stage or another.

Good luck to any holders here :)

[macduffy]

Thanks, all.

I'll stick to my "system" of waiting for a confirmed uptrend before venturing into this one. I don't expect to ever be in at the bottom of any particular swing/dip.

[Phaedrus]

By no means buy in when a stock is running.....What you are saying here is don't buy stocks that are in uptrends! These are the very ones that you ought to be buying/holding! Here's the thing about trends - they have a tendency to continue. Just like the momentum of a moving train, it takes time to stop and reverse an established trend.


By no means buy in when a stock is running - buy on down days. Now if only I could follow my own advice.It would be far better for you if you didn't follow your own advice on this one, Modandm. It is quite easy to demonstrate that buying on down days is a bad idea. If we backtest RQL over the period of this chart, Buying on down days and selling on up days, we get an annual profit of 68%. Now, if we reverse this "system" and Buy on UP days while selling on Down days, we get an annual gain of 107%. In other words, on average, buying on Up days gives substantially better returns than buying on down days. At a practical level, you have already proved this yourself. You could have bought an uptrending RQL at Christmas for less than you paid to buy a downtrending RQL today. Buying in December was low risk, while your purchase today was very high risk because RQL is now in a confirmed downtrend. Your rule stopped you buying at a reasonably good time and conned you into buying at what is technically a bad time. Sentiment has turned against RQL and you are now fighting the market.

Modandm, it is readily apparent that you are a fundamental investor and a devout contrarian, so let me demonstrate for you another approach as a trend-follower using TA to time entries and exits. Take a careful look at the chart below. You can see that RQL was in a good strong uptrend, but of course all trends end sooner or later, so it was very important to monitor this uptrend with a view to exiting when it weakened and ended. The most obvious feature here is the "Price Volume Climax" as marked by the dotted magenta elipse. These are often found at significant turning points and that certainly was the case here. Very shortly after this, many other Sell signals were triggered, as marked by red arrows. This was when people like KW were getting out.

http://i602.photobucket.com/albums/tt102/PhaedrusPB/RQL128.gif


Anyone trying to time these things - good luck to them. If it falls to 50c now buy another 10k. That's called "averaging down" Mod. All you are doing is compounding your mistakes.


Yeah good point there modandm.No it's not! What he is advocating is viewed as very, very bad practice by most professionals. For example, take a look at this set of rules, particularly the first two :- http://spahiu.wordpress.com/2006/05/27/the-not-so-simple/

To buy a downtrending stock just after it has fired off a slew of Sell signals makes for a very high risk entry.

Mod, you could have bought at Christmas, sold out in January when the uptrend ended, and now be sitting on a large war-chest of funds waiting to re-enter RQL when the current downtrend reverses - just like MacDuffy.

[soulman]

im on board finally at 60c - just a small parcel of 10,000.

Good luck to all holders.

Good luck indeed modandm. You will need it. Just looking at past experience, I see this one in the mid to low 50's next week.

Indeed the market always teach us lessons (and boy have I learn plenty lately). If you have to learn lessons, your wealth have dropped. Not a good thing.

Low 50's might be a good swing trade opportunity there Drill. And you can get into it too McDuff.

[drillfix]

No it's not! What he is advocating is viewed as very, very bad practice by most professionals. For example, take a look at this set of rules, particularly the first two :- http://spahiu.wordpress.com/2006/05/27/the-not-so-simple/

To buy a downtrending stock just after it has fired off a slew of Sell signals makes for a very high risk entry.

Mod, you could have bought at Christmas, sold out in January when the uptrend ended, and now be sitting on a large war-chest of funds waiting to re-enter RQL when the current downtrend reverses - just like MacDuffy.


Phaedrus, certainly good points you make for all to see as usual, and great points from 1 & 2 even though they are the same point. Not everybody on this forum would agree with you though, although logically it is sound advice.

Yet again, I feel you are yet again taking some of my wording out of context Old Chap. Meaning the context of what mod I believe is saying.

Now, I dont know if modandm is thinking about buying today, tomorrow or god knows when but that is of course up to him though the charts as you have kindly posted fair enough do show sell signals so why buy now when you can always buy it for less is what I think you are saying yes? Well again this I would agree with. (if it were me)

Back to Mod again, I think what he is referring to is that at some stage he anticipates that the stock will bounce or turn upwards again.

A classic example of a stock running and then starting to appear like a new down trend is in place due to the TA then only to find that it has turned upwards would be PLV (again, as an example)

Saying that, the impression I get from Mods post is that he will wait for that turn and enter accordingly given whatever risks he is willing to take.

And I do agree with him that there are many stocks that have given off sell signals only to turn around out of the blue and start running again, and I am sure there are many others out there that can also give examples of this taking place.




Soulman, agree, so on top of Mr. P's TA lessons you make some good points about the lessons there :P

Not saying I am gonna enter this stock, but up the road depending what potential setup eventuates it may be good to trade an hourly chart perhaps, dunno just yet.

[whatsup]

I sold my holding on Monday, and took up the SPP offer that closes today. So I'm hoping 49c is the bottom :-)


KW I'm a long term S/H er from 2009 and havent seen my SPP docus when did yours arrive ?

[modandm]

To Phaderus:

When I say don't buy when its running I don't mean when its in an uptrend (I like to buy in an uptrend). What I meant applied mostly to speccys and other small caps and I meant dont buy when its up very strongly (30%+) in a week or so. When daytraders get in stocks like ATN last year went from 3c to 10c and back to 3c.

Im a believer that success breeds success and an uptrend represents a re-rating of a stock which may continue for some time.

In terms of techinicals I think they can be mildly useful but I would hardly say they have the power of predicting world events such as the current egyptian crisis. A random walk...

Anyway I am now $200 poorer... lets see what happens over the 6 months to a year and revisit the decision. As I have learnt in the past when your investment is up/down 20% or even 40% over a year, 1 or 2c on the purchase price seems to be a small thing. Especially when your buy order got missed and you gave up on a stock because you didn't get it at a support level and it ran up 50% over the next 6 months. And I find averagin in/out of stocks and building up a position is an excellent way to reduce timing risk, especially on the selling side.

BTW: No disrespect for technical analysis or anyone's approaches - we each find a way to suit ourselves. I have been more than happy with my results over the past few years.

[modandm]

Good luck indeed modandm. You will need it. I see this one in the mid to low 50's next week.



Thanks mate! Glad to hear what your crystal ball has to say...

[soulman]

Thanks mate! Glad to hear what your crystal ball has to say...

It's a hunch you get Modandm. Sort of like a sixth sense. Sometimes it's wrong, sometimes it's right.

If we are talking probability, I see downside in the tunes of 51 - 54. I am not saying RQL won't get to $1 in the future.

I will be buying for 52 for a swing trade if it does get there.

[drillfix]

It's a hunch you get Modandm. Sort of like a sixth sense. Sometimes it's wrong, sometimes it's right.

If we are talking probability, I see downside in the tunes of 51 - 54. I am not saying RQL won't get to $1 in the future.

I will be buying for 52 for a swing trade if it does get there.

Some well spoken logic there soulman.

Perhaps we should call you SwingMan with this sound approach :P

[soulman]

Some well spoken logic there soulman.

Perhaps we should call you SwingMan with this sound approach :P

There's a few there available for swing trade Drill. Nice to buy and sell for quick quid because of moving averages.

[COLIN]

[QUOTE=modandm;335017]To Phaderus:


In terms of techinicals I think they can be mildly useful .............QUOTE]

Gee, Mod, that's sticking your neck out a bit, isn't it! As a more recent convert to the great merits of technical analysis, after literally decades of fundamentals-based investment decisions, I'm afraid I would have to disagree with you vehemently over your use of the word "mildly". I've been expecting Phaedrus to come down on you like a ton of bricks, any day, but he must still be trying to regain his breath!

With respect to where we are at with RQL: Now that the SPP is out of the way (holders selling to buy in at 49c) I expect it to resume its former upwards trajectory. I continued to hold over the SPP offer period, notwithstanding the contrary signals being sent out by the technical indicators I normally use, justifying my decision in the knowledge of the likely cause of the weakening sp which I regarded as only temporary.

See, one doesn't have to slavishly act on the signals!

[COLIN]

SPP oversubscribed by 200% and, notwithstanding the decision to increase the issue to $4.5m, we're going to have at least 50% returned where we have subscribed for our full quota. Disappointing in one way but encouraging in another, of course.

[modandm]

be glad to hear comments on the result out today.

I feel the market sentiment for the company is very strong at present. I mean they announce the floods are having a short term negative impact on sales and costs yet SP goes up.

They say this is a game-changing year for RQL - thats exactly right. if they get it right well $1 is not far off. If costs blow out - which has already been signaled and is a real risk, RQL could be in trouble.

I tend to lean on the positive side with this company but I definitely get the impression Jamie Cullen is trying to manage the markets high expectations and that investors high expectations may get the better of this one...

[mamos]

Great result.

Wonder about the low SP negotiated on the acquisition and whether this attributed to the 3x multiple. Maybe a higher negotiated SP would have just increased the multiple paid. Looks like a good acquisition. Should easily beat FY11 numbers.

FY12 will be a very strong year.

Still benefiting from tax losses. Still bewildered why they don’t show these on the balance sheet. Something about not being in control of whether can utilise.

Little bit disappointed about the extent of dilution from recent placements, but was fortuitous time to raise capital with QLD flooding.

On a normalised PE basis not as attractive however strong growth prospects suggests it deserves a high PE ratio anyway.

Rough estimate I see them doing EPS of about 6.5c basic, ~6.2c fully diluted in FY11 based on capital base expected at 30/6/10, will be higher if use weighted average shares on issue for FY11 which they will for statutory reporting. May prove to be conservative. FY12 anyone's guess.

Could see 80c in short-term.

[modandm]

[FONT=Tahoma]FY12 will be a very strong year.

On a normalised PE basis not as attractive however strong growth prospects suggests it deserves a high PE ratio anyway.



Lets hope... the problem for me is that growth is now well priced in and if costs blow out, or execution is subpar on an ambitious growth plan, or growth comes slower than expected, then the SP could take a severe correction.

Those calling for 80c+ might be underestimating the risks

[modandm]

anyone read the investor presentation?

One thing im not sure of is the revenue chart - shows each years revenue tracking month by month. You see there is a big drop in january february and then a spike up in march.

My question is - does this chart now include the acquired pipe business and is this the cause of the spike or is that business excluded?

[macduffy]

No, it's not entirely clear but to be consistent with an earlier chart on M/Cap movements which included the effect of the acquisition in February, I'm inclined to think that the pipe business revenue has been included from that point. There has been a seasonal jump at this time in previous years but 2011's is particularly sharp.

There's some thing else wrong with that chart though. It purports to show seven years but only 6 lines are apparent. I woder which year is missing>

[modandm]

guys - a quick mention of RQL which I got in and out of over a short space of time a while back but still am very interested in.

Macquarie started coverage last week with a target of $.77 and praising the growth prospects - intimating that contract success could see revisions of the target price higher. This saw the shareprice jump and touch a high of 78c before being sold down to the low 70s. There was a bearish engulfing candle (like that TA guys?) which marks weakness and identifies strong resistance and profit takers at the levels above 73c.

The company released an intern report earlier this month which I saw as being very positive and reinforcing the momentum played up in the presentation around the time of the cap raising. I am looking forward to the next report to further demonstrate the trend of strong growth.

At this point I am not in the stock - and am waiting for an attractive entry point. I see this as being:
1. If the sp drops below 63c on profit taking and consolidation (no news)
2. If the next presentation disappoints (as it may well given challenges of growth and lack of additional capacity to meet demand) leading to a sharp selloff - there will be major value between 50-55c should this turn out.

I see 1 as being more likely.

Overall this company is a real standout - growth prospects of 20%+pa for next 5 years trading on a pe ratio of about 14 and MCAP sweetspot of $160m.
Looks like ANG did 2 years ago when I bought for 2.30.

[mamos]

There was an article in AFR yesterday saying how most of mine pits in QLD are still flooded and they are shuffling water around pits to try to get access to mineable areas. However this is only a temporary solution.

RQL run by a good operator Jamie Cullen of PCH background which was bought out in 07.

[macduffy]

Has anyone looked at RQL recently? I've been keeping a casual eye on the company for a while and notice that despite a good profit reported on 25 August, the stock has slumped from around 75c to 50c in the last 2-3 months. The villain seems to be an announcment early in August that a contract with FMG will not be renewed, accounting for about 8% in annual revenue. Rather an excesive reaction, IMO, unless there is more to that than meets the eye.

[modandm]

Hi McD.

Yes I have been watching - it seems my #2 scenario from above has played out. Catalysts for the fall I see as:

1. Guidance of a slow start to this financial year and a 40:60 split. This puts a lot of pressure on to deliver and sets itself up to miss expectations IMHO.
2. Loss of FMG contract
3. Selling by major shareholder HHL

What have I been doing with regards to the stock?

10 August - Buy at .56 - true to my earlier post and true to my bad habit of buying to early.
16-18 August Buy at .535 - building a holding
20 October - buy order at .375

This is my rationale: - See presentation and go through it with me.

page 3 FY11 diluted eps of 6.3c - puts RQL on PE of 6.3 @40c. Which is unbelievable for a company with FY11 eps growth of 44%.

page 13 - concensus of $16m pbt for FY12 I use $14m for conservatisim - translates to 27% growth and around 8c diluted EPS. forward PE of 5!

using concensus of $16m it looks even better.

I can't understand why it is so cheap but I am wondering if a few short term investors are exiting in panic having bought at 70c or exiting because there is no real catalyst for the stock to go up until full year results and there is a risk half year results disappoint worse than already indicated.

Are you buying what is your take? I am wondering whether to sit on what I have or start backing up the truck. And also trying to not buy too early as I did before. At this stage I am leaning towards increasing my position.

Be great to hear your thoughts.

[drworm]

Not sure if your EPS numbers are quite right there modandm.

I don't know much about the company, but did a quick crunch...

Estimate FY12 NPBT = $16m. After tax that's $11.2m assuming 30% tax rate. Latest Appendix B says there's 247,019,935 shares on issue, which makes the FY12 EPS estimate to be 4.53cps (fully diluted).

While forward P/E of 8.8 is not expensive, there a probably other mining services companies in similar positions at the moment. Working against RQL though is it appears to be capex heavy and has a decent amount of intangibles on the books.

[modandm]

Not sure if your EPS numbers are quite right there modandm.

I don't know much about the company, but did a quick crunch...

Estimate FY12 NPBT = $16m. After tax that's $11.2m assuming 30% tax rate. Latest Appendix B says there's 247,019,935 shares on issue, which makes the FY12 EPS estimate to be 4.53cps (fully diluted).

While forward P/E of 8.8 is not expensive, there a probably other mining services companies in similar positions at the moment. Working against RQL though is it appears to be capex heavy and has a decent amount of intangibles on the books.

if you use your method eps for FY11 should be 4.45cps when it is actually 6.3cps per the presentation. Im not sure what is going on here but I imagine that RQL has tax losses carried forward. I used the same ratio for PBT --> eps as has been used for Fy11. Didn't use the shares on issue.

Bah, PE EPS such a flawed metric anyhows. Still it makes the most sense to me. Can someone calc the EV/EBITDA ratio for me with Fy11 and FY12F numbers with a 40c SP? That would be helpful.

[modandm]

Working against RQL though is it appears to be capex heavy and has a decent amount of intangibles on the books.

You should read the preso and the one before it drworm - it explains the capital raising and large capex FY11 and early FY12 is to cope with the massive growth profile. The company lease out equipment so once the stuff is bought it brings in recurring revenue (provided it gets leased out).

[macduffy]

Hi modandm - and others.

I've been watching RQL - from a distance - waiting for some sign that the SP was on the move. Still waiting.

The factors that you mentioned - loss of FMG contract, sell down by Hunter Hall, slow start to the new financial year - all important negatives and there's really no compelling reason to buy in today's market conditions. Seems like a classic case of corporate indigestion to me - rapid expansion, heavy staff recruitment/ promotion/appointments, capex blows out, quoting/pricing comes under pressure. I don't know how capable RQL management are in handling these challenges so I'll keep waiting for the SP to turn.

[mark100]

There are lots of cheap mining contractors at the moment. One that I like MYE, is trading at 8x FY12 forecasts and revenue is already fully locked in from long term contracts (thermal coal underground mining). That will represent 20% plus EPS growth and 20% plus ROE

I seem to remember RQL's EPS last year got a boost as they had tax losses and didn't have to pay a high rate of tax. This will not always be so. A quick look at consensus FY12 EPS for RQL is showing EPS of 5c (PE 8x). For reasons outlined by macduffy above, RQL is purely a watchlist stock for the moment in my view

[soulman]

Not to mention that MYE pays a OK dividends Mark but the stock is just too illiquid for me. RQL don't pay dividends and charting and momentum wise tells us to stay away until a base is formed. 37 cents could be that base but any more bad news would pushed it under 30. Certainly won't touch it with a pole.

[modandm]

Not to mention that MYE pays a OK dividends Mark but the stock is just too illiquid for me. RQL don't pay dividends and charting and momentum wise tells us to stay away until a base is formed. 37 cents could be that base but any more bad news would pushed it under 30. Certainly won't touch it with a pole.

Fair play to both you and mark100. Personally I prefer RQL over MYE for a few key reasons: (all IMHO and may be wrong)

1. It is smaller and has yet to hit the big growth spurt MYE has had over the last 24months
2. It is not a contractor but an equipment lease co - very different and alot less risky - i am very attracted to the rental model - it has worked well for others
3. Has a more diversified customer base (than just coal miners underground)
4. Stands to benifit from small acquisitions in the same way ANG has - complementary businesses bought on low multiples EPS acretive - because RQL is small small acquisitions make an impact.
5. I like the management - and they still have a long way to go, whereas to me with MYE - the management and directors have already hit paydirt.

May well be sensible to wait for an uptrend however for my money I am building a stake at these levels.

[modandm]

guys i would love to hear more comments on the stock since the half year results preso has been released.
http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=RQL

RQL unconsolidated
Sales up 38%
Ebitda 33%
Ebit 25%
NPBT 25%

The DSA business drags on the consolidated result - due to loss of FMG contract and associated costs. Management seem very confident that the worst is over and see a bright future for DSA. This preso should allay some fears but I feel management will need to show a strong FY result to get the SP back to 70c. In the medium term 2-5 years I see this stock at over $1 easily if they can grow FY EPS to 10c. Current Sp is 45c.

Diluted EPS for HY = 2.6c down from 2.8c, got to take into account the high depreciation on recent capex + large costs associated with FMG and growth this HY. Full year EPS should be 6c-7c. Makes a PE of 45/6.5 = 7 and what do you want for a growth rate? 15% seems realistic. Even at 5% growth which would be a bad outcome you are looking at a pretty good stock.

I will be looking to add to my position in late march.

Mining services cos I hold: ANG (2.60), BKN (8.26) RQL (.537)

If mark100 et al would like to discuss their fav mining services stocks and why they hold that would be great too. Should really have a dedicated mining services thread.

[modandm]

There are lots of cheap mining contractors at the moment. One that I like MYE,

nice movement upwards on MYE since september mark100. $150-->$190 congratulations. Do you continue to hold?

[mark100]

Hi modandm, still holding MYE and I am fairly comfortable with that as they have already given guidance that the interim result will be solid. Plenty of work in hand also means the full year result and FY13 should be good. I also got back into MLD under $2 recently and I liked their result, and they also have a very strong forward order book.

So MYE and MLD are probably my two favourites at present. However the overall health of the market will dictate how high the PEs will go. At the moment MLD and MYE are still sitting on FY12 PE of around 9 which is ok.

Also MXI had a very good result and is cheap (PE 7-8) but a bit more speccy. DSB (PE approx 6) should be cheap but I await it's result with interest and my holding is quite modest

I have had a quick look at the RQL result and plan to go through it better before the market opens tomorrow. My first comment is I normally disregard the tax benefit because it is not ongoing if the company remains profitable. Therefore I tend to discount the profit by 30% to reflect the full tax rate. So that pulls the NPAT down to $4.6m and fully diluted EPS to 1.84c. They are talking about a bigger 2nd half, how big do you think it may be?

[modandm]

DSA revenues 65% higher for 2nd half implies turnover of 11.5m - use margin of 22% = NPBT contribution of $2.5m. RQL 1hy $6.3 2nd usually stronger around $8m (conservative) - based on comments that 1hy has been slow and delays and low utilisation.

Add that up you get 6.3+2.5+8 = $16.8m NPBT so $11.7 NPAT so EPS 4.75c for the Full year. Thats how I see it playing out. Will look forward to updated broker research soon (there isn't much).

That should set a good base and EPS growth up to 6c in FY13.

I understand the tax issue and have ignored the credit - but you know there is a value to them that should be accounted for.
Also if you look at the cashflow for the business it is very good. They spent alot on Capital goods in 2010-2011 which means depreciation is high. Significant additional capex is prob not required for replacement for at least 10years. Growth capex maybe in 2015 depending on success. Operating leverage continues to improve.

They have had a lot of probems this half to deal with and it sounds like they are pretty resolved. That the 1st HY result was still ok EPS wise is a reflection on the strength of growth. I mean the REL result is simply outstanding.