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Great results - and lovely to see the $10m revenue upgrade to $280m-$290m.
The adjusted EPS for H1 (excluding the investment portfolio movement) is 10.53c, up from 6.7c - that's 8.7p EPS in H1 alone, so CAPD are on track for say 18p-20p EPS this year.
Which is a P/E of around 5...backed up by the $47.3m investment portfolio and other high tangible assets.
The interim divi is up 8% to 1.3c.
The rapid rise of non-drilling income to 28% of revenues, plus the long-term nature of much of CAPD's drilling work, is quickly reducing any vulnerability to cyclicality.
Tamesis's 160p target may or may not be increased again today, but it certainly looks a reasonable - and achievable - target imho:
Https://uk.advfn.com/stock-market/london/capital-CAPD/share-news/Capital-Limited-Interim-Results/88863858
Very confident presentation just now. CAPD will be touring and presenting to the City over the next 4/5 days and then there'll be an Investor Meet, so hopefully drumming up additional interest here given the good story to tell.
A few points I noted:
- currently the strongest rig utilisation since IPO
- operating in 5 of the top 6 producing gold mines in Africa where they operate (don't operate in Burkina Faso or Ghana)
- the $47.3m investment portfolio has a cost of just £11m
- the ex-div date for the 1.3c divi is 1st September
- there's an improving rate environment for mining services contracts, and CAPD are able to pick and choose which ones they tender for
- all majpr contracts have rise and fall mechanisms to account for rising costs, and the rest allow for negotiation. Cost pressures have been successfully mitigated, and CAPD are around the top of their 25%-30% margin range
- MSALABS margins are "broadly in line with Group margins across the board", so maybe these will rise further as the business scales up?
I didn't manage to attend the presentation but will catch it later assuming it will be on their web site at some point. Thanks for the notes. Those all sound pretty positive.
Overall, nothing surprising in the results today. Pretty much what they flagged in the trading statement plus further detail on margins. Dividend 'only' up 8% so that is pretty cautious. I had pencilled in a sharper rise but otherwise these figures were in line with my expectations.
The only negative for me was the lack of further contract wins. I wonder if they have missed out on a few because I would have thought they would have tendered for quite a few in H1. As per my last message, another large services contract would set this alight. It would also prove Sukari is not a one hit wonder and they can actively target contracts of that nature.
MSALabs all positive. Very impressive growth rate - $30m this year! I had that in for 2023. That business alone has to be worth upward of $150m - 25% margin implies $7.5m EBITDA which should surely be valued at 20 times for that sort of growth rate. Roll forward just three years and we have $20m EBITDA and probably a more mature rating of 10 would be $200m value.
All in the context of an EV of $260m! How is not above 120p by now? Warren Buffets 'the market can stay cheaper than you can stay solvent' springs to mind. At least we get a 3% dividend in the meantime, not to be sniffed at.
JL
The $10 million loss on Investments was the one downside I saw. Does anyone hear have insights ot what is going on in this? Having not read the company report I don't know what these are or why they are even in here give the core business seems to be ticking along nicely.
Good to see share price move up after a small 5k buy following some large trades totalling around 825,000 shares - perhaps an overhang has been cleared.
EnglishPatient, as I noted in my prior post the $47.3m investment portfolio has a cost of just S11m, so this has been hugely successful. The investments rose in 2021 with the bull market to a value of over $60m at that year end, so the decline in the markets since then has taken the portfolio's value down to the current $47m.
The market/share price never gave any credit to CAPD for the massive suucess in its investment portfolio, so there's no reason to think that CAPD might be penalised, when all that's happened is a 6-month downturn from the highs which has reduced their gains to a "mere"300% or so.
OK but why have it at all? Why not reinvest into the core business or give it back to shareholders via higher divs or a share buyback? I just don't get it, no-one is buying this stock for their investment management expertise.
Tamesis Partners have today reiterated their Buy and 160p target price. They summarise:
"Strong Growth with Increase in Guidance
Capital Limited (LSE: CAPD) released H1 2022 results this morning and have presented on them subsequently. Overall, it was another good set of results with strong growth in the three underlying parts of the business; drilling, mining services and laboratory operations. Revenue had already been announced. EBITDA, EBIT and underlying NPAT were all up by 46%, 39%, and 57% respectively. Operating cashflow rose 6.5x and the 8% increase in dividend leaves the company trading on a likely 4.5% dividend yield for the year when including the $2.5m buyback executed in H1. We remain very comfortable with our 160p Price Target.
Investment Case
As has been the case for nearly every announcement in the last three years these results are strong and point to further strength and growth. With activity in the mining sector still strong and long-term contracts locked in, we see safety in the medium term revenues and margins. Meanwhile the shares are trading on EV/EBITDA multiples of 2.5x and 2.3x 2022 and 2023 respectively, PE ratios of 8.0x and 4.5x and a dividend yield of 3.4%. This implies next to no growth in the business, yet our forecasts show a 8% CAGR in EBITDA from 2022 to 2024 and a 46% CAGR in free cashflow taking net debt from $19.6m at the end of 2022 to a net cash position of $48.3m by December 2024. We believe that, if anything, these forecasts are conservative."
EnglishPatient, CAPD stated today that they'd sold $2.5m of shares in H1, and I'm pretty sure that in their presentations they've said they'll sell more as and when. Besides, these investments have not only been hugely successful at relatively little cost, but they've also brought in lots of new business, so they've been doubly successful. No doubt if CAPD feel the investments have peaked they'll continue to sell (and likely continue with the share buyback programme which has already bought in a substantial number of shares).
Mark Simpson and LeoInvestorUK have posted their latest weekly small caps review, including this summary of CAPD's interims:
Https://smallcapslife.substack.com/p/small-caps-live-weekly-summary-bee
"Capital Limited (CAPD.L) - Interim Results
EBITDA came in at $41.4m looks good considering Q1 was relatively weak. EBITDA margins of 30%, top of the guidance range. This shows they are managing any inflationary cost increases really well. Mainly because most of their contracts adjust for inflation. They also provide a small upgrade to revenue guidance:
Full year revenue guidance increased to $280 - $290 million (from $270 - 280 million);
The outlook is very positive, as followers of the company already know:
The underlying demand in the market continues to be encouraging, as is evident from the high utilisation rates the Group delivered in the first half. While there will be some seasonal slowdown through the third quarter, the tender pipeline remains buoyant across drilling, mining and laboratories and as a result of this strong demand, we are raising our revenue guidance for 2022 to $280-290 million.
But there is also good awareness that these boom times will not be forever:
In drilling we have taken advantage of the strength we have seen in underlying demand to focus on contract selection and rotate our portfolio. Through the period we have commenced operations at two more of Africa's largest gold mines, Kibali and Fekola, that are well positioned to operate consistently throughout the cycle.
Given this, Capital really should be on a premium rating to the sector. Yet their presentation shows that they remain at a material discount:
The capex guidance has increased:
We have also lifted our capex guidance to $50-55 million, which includes higher sustaining capex on the expanded fleet, and additional rigs to replace expedited rig replacements. In the strong demand environment we are currently experiencing, we have decided to further replenish our fleet to ensure both high reliability as well as a peer leading safety performance which remains core to our operations.
Some may not like this, although we view this as a fairly positive sign given that Capital are excellent capital allocators. Perhaps the only thing to criticise in these results is the lack of further buybacks announced. The overall returns to shareholders from a growth company at 3.7% dividend yield and 90bs of historical buybacks this year are not too bad. However, with the company trading at a forward EV/EBITDA of 2.5, then buying back shares is like winning new business at 40% EBITDA margins. Something they may struggle to do, even in these boom times.
The share price reaction to this small upgrade was minimal, perhaps because shareholders have got used to this company not moving even on excellent results. This does, however, mean that a significant valuation anomaly remains."