The next focusIR Investor Webinar takes places on 14th May with guest speakers from WS Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Great numbers overnight from the largest player in the sector, Major Drilling:
Highest quarterly revenue and net earnings in 10 years.
• Revenue of $199.8 million, an increase of 32% over the same period last year.
• EBITDA(1) for the quarter was $43.5 million (or $0.53 per share), an increase of 80% compared to the same period
last year.
• Net earnings of $24.2 million, or $0.29 per share for the quarter, more than double the net earnings of $11.1
million, or $0.14 per share for the same period last year.
• Net cash at $8.5 million compared to net debt of $1.6 million in April 2022.
• Good progress in labour recruiting, training, and retention.
“Despite a decline in commodity prices since the beginning of 2022, activity levels currently remain stable. A slowdown in junior mining financing is being offset by a desire from senior customers to continue to grow their reserves, both in precious and base metals. With metal prices remaining at levels well above what is needed to support exploration, we are already in discussions with several senior customers for their calendar 2023 programs, with many looking to book their rigs early,” said Denis Larocque.
I am a holder of Capital Ltd and have been pleased with the continued progress. I have noticed this with other listed companies, but I was wondering if anyone has a good explanation of the Ltd has been retained rather than adopting a PLC within the business name?
Capital Limited (CAPD-LSE | BUY, TP 140p): CAPD announced new drilling contract with existing customer, B2Gold, lasting until the end of 2024. The company will purchase an additional 10 drilling rigs to service the contract. Capex guidance for the year has been increased by $10m as a result to US$60-65m. Revenue guidance for CY remains unchanged at US$280-290m, and the company expects a strong contribution from the contract in 2023 and 2024. CAPD now expects to end the year with a rig count of ~130 rigs, compared to CG est ~122 in 2022 with the addition of 5 over the course of 2023. We estimate new contract could represent an uplift of ~US$8-16m in revenue contribution. Stock trading on a 2023E EV/EBITDA of ~2.1x and a (pre-debt) 2023E FCF yield of ~22%, analyst argues stock is significantly mispriced.
Tamesis Partners have updated their research. They retain their 160p target price, and summarise succinctly as follows - the EV/EBITDA and P/E ratios are now ridiculously good value:
Https://www.tamesispartners.com/research-portal#/portal/tamesis-partners
Extracts:
• An expanded drilling services contract with B2Gold Corp. at the Fekola Gold Mine, Mali, out to the end of 2024. Services on site now include development (diamond & reverse circulation) and grade control drilling. This follows the initial drilling contract announced at the end of June 2022. Fekola is a huge mine – the third biggest in Africa – with guided production of 570,000 to 600,000oz in 2022 and the contract award highlights the strategic intent of Capital to increase exposure to tier-1 operating mines. Clearly getting an extension/expansion suggests satisfaction with the job being done and bodes well for Capital’s relationship with the $3.3bn B2Gold."
• Financial impact in 2023 and beyond. Our forecasts for 2023 do change clearly. If we add the 10 rigs to the 120 rig count and blend into our forecast of 76% fleet utilisation and $175,000 ARPOR then we see a 5.8%, 8% and 6.4% increase to revenue to $317.9m (from $300.4m), EBITDA to $93.1m (from $86.2)m and free cashflow to $40.1m (from $37.7m). These percentage increases extend into 2024 and probably beyond the current life of contract as the company will no doubt seek to renegotiate. That’s a FCF return of 24%, for instance, on invested capital reflecting the strong fundamentals of the business."
"At the current price the shares are trading on EV/EBITDA multiples of 2.0x and 1.8x 2022 and 2023, PE ratios of 6.8x and 4.1x and a dividend yield of 4%. This implies next to no growth in the business yet these sort of contract wins plus the phenomenal trajectory in the laboratory business with Chrysos (c$80m+ of revenue by 2025 vs just $3m in 2019) show that the reality of the investment case is completely the opposite. We maintain our price target of 160p."
Excellent news this morning - a big expansion of the contract with B2Gold Corp through to 2024 at Fekola, "amongst the largest gold mines in Africa".
No revenue upgrade for this year, but 2023 and 2024 will presumably be upgraded reasonably materially.
This once again demonstrates that CAPD have transitioned to long-term, blue chip, gold-production contracts and away from the more cyclical exploration drilling:
Https://uk.advfn.com/stock-market/london/capital-CAPD/share-news/Capital-Limited-New-Contract-Award/88989299
There were also strong hints at expanding out of Africa recently, perhaps a Perth based CEO is also advantageous there.
Mark Simpson has just posted his weekly small caps update, including this on CAPD, primarily about the new CEO appointment.
Interesting to note that since the share buybacks in early 2022 the EPS forecast in dollars has risen by 17% and the pound has depreciated against the dollar by a further 11%, i.e almost 30% in total better off in sterling terms....
Https://smallcapslife.substack.com/p/small-caps-live-weekly-summary-eac
"Capital Limited (CAPD.L) - CEO Appointment
Capital has been running with founder Jamie Boyton as Executive Chairman and no CEO, since the previous one retired in 2017. This week they have decided to appoint a new one. The reasons given are:
These changes represent further steps in reshaping and strengthening the Company's leadership team while also adhering to the Company's commitment to the highest levels of corporate governance. Jamie Boyton, currently Executive Chairman, will oversee a handover period with Mr Stokes over the ensuing six month period.
Having a combined Chairman & CEO role is frowned upon in some corporate governance circles, although we have never doubted the company’s commitment to doing the right thing. So it may be that larger shareholders have demanded this appointment.
Expanding a management team comes with increased overhead costs, but perhaps also frees Boyton to focus on what he does best: capital allocation. We think there is a strong argument for capital to be directed to share buybacks at this time. The share price is below where a buyback was conducted earlier in the year, but since then, the 2023 EPS forecast in dollars has risen 17%, and Sterling has depreciated by 11% against the dollar. This makes any buybacks about 30% better value than they were earlier in the year.
In terms of the candidate, Peter Stokes, he appears to have had a strong career across mining & logistics. We can see him managing the operations well and leaving the investment & business development side to Boyton. Probably a win-win for both of them."
Positive drilling results from Syama (where CAPD are the contractor) from Resolute Mining:
Https://www.londonstockexchange.com/news-article/RSG/two-million-ounce-mineral-resource-at-syama-north/15604334
In particular, lots more work to come:
"Future Exploration
The drilling program at Syama North is ongoing and is expected to extend throughout 2022 as results continue to expand the Mineral Resources. The sulphide mineralisation remains open at depth and appears to be contiguous along the entire strike length of the Beta and A21 deposits.
Infill drilling will also be undertaken as half the Mineral Resources are classified as Inferred and will require to be upgraded to Indicated category to be included in Ore Reserve calculations.
At this stage exploration drilling will be restricted to zones within 150m of the surface to concentrate on identifying open pit extractable Mineral Resources. The potential of an open pit operation at Syama North is high with engineering studies commencing to evaluate the project.
An open pit sulphide mining operation will complement the Syama Underground Mine and add 'flexibility' to the processing complex.
A new low-level, high definition heliborne aeromagnetic survey commenced in July to improve on the historical wide-spaced aeromagnetic coverage. The survey will cover the whole 85 km length of the Greenstone Belt held under license in an effort to delineate more sulphide resources which are the long-term future of the mining operation."
Late yesterday what looks like a very positive update on CAPD was issued by the never knowingly understated HotStockRockets - anyone got full access?
Https://www.*************.com/views/63946/capital-limited-positive-interims-and-further-encouragement
"Capital Limited – positive interims and further encouragement
By HotStockRockets | Thursday 25 August 2022
Mining services company Capital Limited (CAPD) has announced results for the first half of 2022 and that “the underlying demand in the market continues to be encouraging”."
Good to see 50,000 shares bought in three blocks already today on a normally quiet Friday morning, causing the bid price to move up from 88p to 89.2p so far.
CAPD's large investment in Predictive is up 8% overnight on "outstanding" drilling results from Bankan.
CAPD in Q1'22 extended its exploration and delineation drilling contract and expanded "initially" from 2 to 5 rigs - and this press release says there are currently 10 active drill rigs on site:
Https://www2.asx.com.au/markets/company/pdi
“Predictive’s next phase of drilling, which is focused on further defining the quality and extending the fast-growth resource of the NE Bankan gold deposit, continues to prove up the significance of what is the largest gold discovery in West Africa for over a decade.
“As we continue to drill out our assets and move towards the development phase of the project, we are also highly encouraged by the consistency and quality of the resource through our initial grade control drilling at NE Bankan.
“With the expanded drilling cap and the data gathered to date, Predictive continues to maintain significant momentum in its development as we gain further knowledge of what will clearly become a Tier 1 asset in the gold mining industry.”
I missed the presentation this morning so will have to catch up another time.
dangercapital has posted some helpful notes on Discord, for which thanks - apparently Jamie noted repeatedly that the current investment cycle was still in its early stages::
"Q. M&A? A. market not valuing earth movers. Jamie addresses bid defence - strong holders and concentrated should defend against an opportunistic bid.
Q. Dual listing? A. Aware of valuation difference, but illiquidity across 2 exchanges doesn't help.
Q. Leverage? A. An internal target not an external one.
Q. Inventory? A. managed closely, expected to fall in H2.
Q. focussed holdings? A. Moved out of those without explo success, added to those with explo success.
Q. End goal of equity holdings. A. to realise value, provide services as exiting investments.
Q. debt refinancing H2 aim? A. increase capacity to move quickly. Cost of debt should come down quickly.
Q. MSALABS margins? A. Mature Labs would have a higher margin. Current - still relatively small. will report segment when larger.
Q. Rig count? A. no magic number, based on clients, not about rig growth but developing the next big mine customer.
"We are bulls on this cycle, it is due to the classic capital investment cycle. Due to an underinvestment ... looming shortage in resources in many commodities."
CAPD are drilling contractors for (and investors in) Awale at the Odienne gold-copper project in the Ivory Coast.
Awale's shares were up 33% overnight on good news from Odienne, which is subject to an earn-in JV agreement with the mighty Newmont.
They've identified "the discovery of a new 4km-long high-tenor copper (+molybdenum & arsenic) anomaly at the Lando prospect":
Https://finance.yahoo.com/news/awal-delineates-4km-long-soil-130000842.html
Capital Limited ( the old Capital Drilling) (CAPD-LSE | BUY TP 140p): ALS Ltd (ALQ-ASX | Not Rated) READ ACROSS - ALS provided guidance for 1HFY23 NPAT of ~24-28% above corresponding period from FY22. Read across is positive for sample volumes in Capital's laboratories business. ALS said that "The trend of testing for battery related metals, such copper, nickel, lithium, and cobalt, continued throughout the year, and we expect this to continue going forward as society progresses its' sustainability agenda."
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."
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).
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.
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.
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.
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
Berenberg have again raised their target price today, to 173p (from 169p), and say Buy:
Https://www.sharecast.com/equity/Capital_Limited_DI/broker-views
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?
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
Bleedin' asterisks! Try here as well....
https://www.lsegissuerservices.com/spark/CapitalDrillingLtd/events/db8bbc58-599b-4a60-aa07-abc49d7d187d
You can register for the H1 results presentation webcast at 10.00 am tomorrow morning here:
Https://*********************/events/london-stock-exchange/capital-limited-h1-2022-results/1055/2f5d79ac-7afc-46fb-b252-f2ec6ca63cf3