- Emeco's earnings update slightly disappointing - Planned increase in capex an offsetting positive - Brokers sees value given expectations of solid earnings growth By Chris Shaw Resource equipment hire group Emeco Holdings ((EHL)) plans to accelerate growth in FY12, management yesterday announcing an increase in capital expenditure plans to help achieve this goal. The funds will be spend on new and used equipment. Capex is now expected to total $165 million by the end of FY12. This amount is around 20% higher than BA Merrill Lynch had expected, leading to estimates it could add around 4% to earnings per share (EPS) in FY13. The capex will target the core Australian and Canadian markets, something Credit Suisse expects will improve the sustainability of Emeco's earnings through the cycle. While there is some operational risk from a lack of customer contracts to date, Credit Suisse expects tight market conditions will keep equipment utilisation at solid levels. The update on capex was accompanied by updated earnings guidance, which suggests net profit for FY11 will be between $55-$57 million. UBS had been forecasting a profit for the full year of $60 million, so its estimate for FY11 has been trimmed slightly. The higher capex is a positive for earnings beyond the current year however, so UBS has lifted estimates for FY12 and FY13 by 4-8%. This reflects the expectation there will be strong demand for the additional equipment Emeco will deploy. Credit Suisse has also adjusted forecasts, trimming earnings estimates by an average of 3% through FY13. The changes reflect both the revised capex plans and changes to factor in currency movements and adverse weather conditions. Post the changes to forecasts across the market, consensus estimates for Emeco in EPS terms according to the FNArena database stand at 9c for FY11 and 11.6c for FY12. There has been one change in rating on the back of Emeco's update, Credit Suisse upgrading to an Outperform from Neutral previously. The upgrade reflects both improved value following recent share price underperformance and improved forward visibility with respect to earnings.