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The size of the buybacks continues to rise - 57k shares yesterday, at 89.8p:
Https://www.investegate.co.uk/capital-limited--capd-/rns/transaction-in-own-shares/202201210715081608Z/
Also, good news from Aya Gold, where CAPD last year won drilling work for the Tijirit project in Mauritania and will see drilling starting soon:
Https://finance.yahoo.com/news/aya-gold-silver-record-annual-120000472.html
"Additionally, a 25,000m drilling program will be carried out on the Tijirit Project in H1-2022. The program, which will consist of 3,000m DDH and 22,000m RC drilling, has the aim of converting resources into reserves in support of the feasibility study."
I was pondering why there was such a muted response to the Q4 trading statement alongside the PIworld video earlier. Clearly the institutions don't see CAPD as under valued, a mistake in my opinion and presumably most on here. Equally, the muted response presumably reflects the fact that all of the good news was already factored into the price. All recent RNSs have been overwhelmingly positive, the huge increase in revenue from the Sukari contract was already known. So in fact there was not that much new there. A few new contracts, all positive of course, but probably not enough to show where the next couple of years growth will come from.
I calculated the quarter on quarter growth over the last year and of course this is slowing down massively. Most of the increase being due solely to the Sukari contract. This year, we will certainly see huge year on year growth per quarter as there was little revenue in Q1 from Sukari and then it ramped up through the year. But what else do we have to look forward to this year...
1. More contracts - likely but rig utilisation at 79% does not leave any room for further growth. They could continue to increase the rig count but this is unlikely to lead to more than a few % QoQ growth.
2. MSALabs - again very likely to grow significantly but from such a small base as to be immaterial this year. This one is definitely more for 2023 onwards.
3. Another monster Sukari 2 contract win. I have no idea on the likelihood of this, or even if they are actively pursuing many bids of this size currently. But I don't think we can count on this to deliver much growth this year unless it arrives in H1.
4. Investment portfolio. I doubt they will repeat the recent stellar rise from 2021 this year. At best, if they hold onto and consolidate gains then that would be fine. They might even consider realising some of this instead of taking on more expensive dedbt.
So those are the rather lacklustre conclusions I came to. So why am I still confident, well the Year on Year growth should see the EV / EBIT multiple of well under 4 and a P/E of well under 8. That to me is simply too cheap. With a 3% dividend, share buybacks using up spare cash, and a little organic growth, they should be easily capable of a 10-20% return this year. That is enough for me in a year of consolidation, if the market is paying me while waiting for the next growth spurt I am fine with that. The following year, MSALabs could well start picking up, and there is also the chance of another large contract win.
There are always two sides to an investment coin so thought I would set out my ponderings for others to refute.
JL
The buybacks continue to increase, with 59k bought at 89.4p yesterday:
Https://www.investegate.co.uk/capital-limited--capd-/rns/transaction-in-own-shares/202201200715080142Z/
And two pieces of good news overnight:
- Firefinch's Goulamina lithium project, where CAPD is the drilling contractor, is "advancing apace" with drilling about to commence:
Https://www2.asx.com.au/markets/company/ffx
"In Mali, site works are ramping up with a sterilisation drilling program in progress ahead of commencement of drilling to target conversion of Inferred Mineral Resource to Ore Reserves. Early civil works will start in February.”
- and CAPD's drilling for Golden Rim is proving successful, with more to come:
Https://www2.asx.com.au/markets/company/gmr
"Following completion of the resource definition drilling, we have subsequently commenced our exploration RC drilling along the Kada gold corridor and we have a number of exciting target areas to test that have the potential to add more ounces to the Kada gold inventory moving forward.”
Here's the full tip:
https://www.investorschronicle.co.uk/news/2022/01/18/capital-puts-its-assets-to-work/
"Capital puts its assets to work
Value of stakes in mining and exploration companies doubles
January 18, 2022
By Michael Fahy
Fleet size increases by 16 per cent year on year to 109
Utilisation rates and revenues per rig also grow
Mining equipment provider Capital (CAPD) said revenue for 2021 came in at $226.8m
(£189.7m), 68 per cent higher than the prior year and slightly ahead of recently-revised guidance.
The company posted its strongest quarter of growth in the final three months of the
year, with revenue up 8 per cent on the third quarter and 92 per cent on the same
period a year earlier.
Throughout 2021, the company grew its fleet by 16 per cent to 109 and increased
utilisation levels substantially – 78 per cent of rigs were used, compared with 57 per cent a year earlier. Average monthly revenues per operated rig also grew by 6 per cent to $181,000.
The Mauritius-based company has also been increasing stakes in mining and exploration companies, an activity it aligns with securing service contracts. These
investments recorded (largely unrealised) gains of $29.1m, doubling in value
compared with the second half of the prior year.
Investment in mining activity boomed last year when compared with a pandemic-
disrupted 2020. Exploration budgets increased by 35 per cent globally to $11.2bn
in 2021, according to a report published in November by S&P Global Market
Intelligence. It predicted that the growth will moderate this year, but exploration
budgets will still be 5 to 15 per cent higher than last year.
Capital’s share price rose 4 per cent, bringing its 12-month gain to 47 per cent.
Broker Peel Hunt said that despite its re- rating, it is still only valued at “the lower part” of its historic trading band, suggesting it has much further to go.
The broker forecasts earnings of 13.1¢ per share for the year ahead. Capital’s shares are currently valued at nine times this level, which is below both its peers and the industry average. Given that the industry shows few signs of a slowdown, we maintain our buy recommendation."
Berenberg say Buy today - and have increased their target price to 134p (from 128p):
Https://www.sharecast.com/equity/Capital_Limited_DI/broker-views
Fantastic trading statement!
Forward P/E of 8, is crazy low for this fast growing company
The risk/reward ratio at these prices......very attractive!
I meant to add... If they don't need to invest too much in Capex in the next year or two then they should be chucking off c. £30m cash per year from 2023. I don't know how much each lab is costing in set up, but they should be FCF positive this year at least.
JL
I completely agree. Still significantly undervalued. Roll on £1 and more...
The discussion on the PIworld video was interesting in that they could not see what the catalyst could be for a re-rating from the current EV / EBIT of 3.5 to a more reasonable 5. They just worried that this was just a cyclical business doing well currently. Whilst certainly true, the valuation is so low that the risk is minimal at this stage of the cycle. Goldmans are predicting we are at the start of a 10 year super cycle for mining - so why would you not want to be in the picks and shovels industry!
But then they also acknowledged the MSALabs business was growing fast and on good margins. But without joining these dots. I can't wait to see the results to see the segment breakdown. MSALabs is of course tiny just now but should at least triple this year with the rollout of three more labs. That could be one possible catalyst in th enext 12 to 18 months.
Happy holder today.
JL
Hi Rivaldo, i hope you are well, there not many companies growing as quick as Capital, completly undervalued at present and a good solid company and management
Tamesis Partners' new note today maintains their 140p target price.
They see 16c and 16.8c underlying EPS for last and this year respectively, i.e 11.9p EPS and 12.4p EPS - at 92p that's a current year P/E of just 7.4.
And Tamesis haven't even adjusted their 2022 forecasts upwards yet, as they hint they will do following today's statement. Presumably they'll wait until the prelims to do so.
And that's without the $51.9m investment portfolio as stated in the RNS, backing up almost a quarter of the m/cap ( that's just the listed portfolio and excludes the unlisted investment).
Their conclusion sums things up nicely :o))
"We continue to struggle to understand why the business continues to trade on such low valuation metrics. The shares are trading on EV/EBITDA of 3.3x and3.0x for 2021 and 2022 respectively. In addition, we estimate the company will continue to pay an attractive dividend; the interim dividend for H1 2021 was US 1.2cps (vs US 0.9cps in 2020) and we estimate a final dividend may be double this of US 0.24cps leaving FY2021 dividends of approx. US 0.36cps or 3.2% yield. Moreover, we haven’t fully adjusted our 2022 expectations following such a successful 2021 so if anything these valuation metrics are even more attractive. We maintain our Target Price to 140p."
A terrific year end trading statement today. Revenues are ahead of even the top end of the already much-increased guidance.
The investment portfolio is now worth $51.9m - backing up almost a quarter of the m/cap.
The outlook couldn't be better. I particularly like JB's comments about the number of growth catalysts:
"As we look to the year ahead, there are a number of growth catalysts to come. At Sukari, with operations now commissioned, 2022 will be the first complete year with the earth moving contract at full run rate. MSALABS is also at an exciting inflection point in Q4 2021, with one Chrysos Photon Assay unit successfully commissioned and 2022 set to see material growth driven by the rollout of further units as well as the construction of the Group's third major hub lab, in Saudi Arabia. For the core drilling business, we also enter 2022 with the highest rig count in the group's history and we are confident in maintaining strong utilisation levels given the increased activity we are seeing from our existing clients as well as the strength we continue to see in commodity pricing."
CAPD are just far too cheap imho, and the share price should be at least 50% ahead of where it is at present:
Https://uk.advfn.com/stock-market/london/capital-CAPD/share-news/Capital-Limited-FY-2021-Trading-Update/87033491
Excellent TaltBong, many thanks.
Good to see the buybacks are slowly increasing in size! Now up to 45k shares at 90p....
Https://uk.advfn.com/stock-market/london/capital-CAPD/share-news/Capital-Limited-Transaction-in-Own-Shares/87025764
Rivaldo,
I recalled seeing this before and found a post from you in September 2021 as follows: (since then Berenberg have raised their target SP for CAPD to 127p of course)
"Here's kaizenkid's summary FYI:
"Berenberg have published a note on CAPD, focused on MSA Labs: Here are a few snippets:
Believe $50m of MSA revenue possibly by 2026, believe CAPD can be $250m revenue biz, peers to MSA like ALS have 34% EBITDA margins, the Chrysos technology revolutionises the testing process - an hour from start to finish vs. 1 day, low cost and more environmentally friendly, revised impact from MSA labs assumptions leads to 10% increase to revenues, 17% increase to EBITDA and 20% rise in EPS (all based on 2022 to 2026), price target 113. 7.2x PE their 2022 forecasts.""
$50 million annually that is
Yes. Impressive work by Leo and you in your precis.
MSALABS: Stephen English mentioned it in the Q&A (at around 1hr 05mins in) that Berenberg are predicting MSALABS to be a $50million business by 2026 and stick a six times multiple on that and we'd all be very happy.
Excellent presentation by Leo, kudos to him. The fund managers concentrated on the obvious negatives of country risk and cyclicality which are (imo) more than priced in, and failed to pay attention to Leo's counter points about diversification, long-term nature of most contracts rather than exploration exposure etc etc.
They similarly commented about CAPD's investment portfolio confusing the overall investment picture, overlooking the fact that CAPD have created tens of £m's of value from nothing and now have a portfolio worth say 25% of the entire m/cap.
Interesting too to hear them wondering about share price catalysts.
I wonder what would happen to the share price if (a) CAPD announced that they'd brought in say £15m of cash from placing out PDI and/or FFX stock. Or (b) if Allied Gold Corp announce their IPO as they've previously stated, thus crystallising CAPD's £10m+ of original cost and perhaps adding another £15m-£20m of value.
Quite apart from what should be a very good Q4/year end trading update any day now given the rosy Q3 and long-term outlook, plus more contract wins, plus the value and potential of MSA Labs (did anyone catch what Leo said Berenberg thought this might be worth? I couldn't find it having failed to note down the figures first time round).
Leo Hendry Pitches Capital Drilling (CAPD) to Andy Brough, Schroders, Judith MacKenzie, Downing and Stephen English, Stellar Asset Management in the second episode of PIWORLD's Sell it to the City.
Watch the video here: https://www.piworld.co.uk/education-videos/piworld-sell-it-to-the-city-january-2022/
Or listen to the podcast here: https://piworld.podbean.com/e/piworld-sell-it-to-the-city-january-2022/
Another 38k shares bought in at 88p:
Https://uk.advfn.com/stock-market/london/capital-CAPD/share-news/Capital-Limited-Transaction-in-Own-Shares/87017163
More importantly, good news overnight from Awale Resources in the IC:
Https://finance.yahoo.com/news/awal-resources-advancing-large-scale-130000996.html
Their share price (and therefore CAPD's investment) rose 8%, and they confirmed "maiden drilling in the first half of 2022", with CAPD having already carried out drilling for them.
A further £33k of buybacks at 88p yesterday. The Q4 trading update should be any day now - last year's was 14th January - so hopefully the decks are being cleared nicely of loose stock:
Https://www.investegate.co.uk/capital-limited--capd-/rns/transaction-in-own-shares/202201130715012716Y/
Another £32,000 of buybacks, at 88p:
Https://www.investegate.co.uk/capital-limited--capd-/rns/transaction-in-own-shares/202201120715021354Y/
That's a bit more like it - just over £20,000 of buybacks on Friday at 88.8p:
Https://www.investegate.co.uk/capital-limited--capd-/rns/transaction-in-own-shares/202201100715078844X/
Don't worry EV_Bull, I'll stop posting them when I get bored!
Yes, 14,625 of 2 million shares which is 0.73% of the planned buyback, no need to report every single one though Riv!
Another buyback announced today - just 4,625 shares this time. They got a good price though at 86.5p :o))
Just announced - the first share buyback was made yesterday, 10k at 88p. Good to see, but hopefully some rather larger purchases still to come :o))
Https://uk.advfn.com/stock-market/london/capital-CAPD/share-news/Capital-Limited-Transaction-in-Own-Shares/86955181
Tamesis Partners have issued a new research note - a P/E of 6.8 is ridiculously low even without 30% of the m/cap being backed up by the investment portfolio alone!
Https://www.tamesispartners.com/research-portal#/portal/tamesis-partners/research/37_2022010409425277386
Extracts:
"The shares have barely moved over the last six months despite a slew of good news highlighting the health of the drilling business, the potential of the mining services contract, the growth in MSALABS and success of their investment arm. It reflects management’s confidence in the business and their frustration at the valuation – see below."
"Valuation
As mentioned above the size of the return of capital is small and as such does not have a major impact on our eps forecasts. Our modelling suggests that the 2 million share buyback, costing US$1.7m at yesterday’s closing price of 84.2p and a GBPUSD rate of 1.35, with increase the EPS from 16.7cps to 16.8cps. The average daily volume in the last six months has been c.450k shares or $0.45m so a 2m share order would theoretically take 8-9 days to fill assuming the order was 100% of the daily volume ie it will probably take at least a month. It should however highlight the extremely attractive set of valuation metrics upon which the shares trade. Based on our (company guided) forecasts, which we believe are conservative if anything, the share price is trading on EV/EBITDA multiples of 3.1x and 2.7x for 2021 and 2022 and P/E ratios of 7.5x and 6.8x respectively. Our Target Price assumes a modest 5x EV/EBITDA multiple for 2022."