Positive Q3 results commentary8 Nov 2022 07:19
FYI, whilst I was on hols Small Caps Life (Mark Simpson et al) sent out useful as ever commentary on the Q3 results. I like the comment that "their own shares remain a better capital investment than almost all the other possible capital investments they could make at this time"!
"Compared to Q2, the number of utilised rigs is down, but the average revenue per rig is up. The reasons given were as expected for this time of year:
"Fleet Utilisation of 77% in Q3 2022 was up 1.3% on Q3 2021 and down 9.4% on Q2 2022, due to typical seasonal weakness, particularly the wet season in West Africa, and also increased asset mobilisation as the group begun repositioning the contract portfolio as outlined at our H1 22 results. Repositioning of rigs is continuing in Q4 2022 along with some refurbishments on the newly acquired rigs at Fekola";
The overall effect is a small beat on drilling revenue and either a small beat on mining or MSALABS (they don’t break this out) versus Mark’s Q3 expectations. A similar story from Broker Tamesis, who say:
"Revenue remains high and on track to meet guidance. The company achieved Q3 revenues of US$73.1 million which is just above the previous quarter which is impressive given the usual seasonal weakness (wet season in West Africa). The company continues to edge up growth in non-drilling revenue contribution (29% of total vs 26% in Q3 2021) driven by strong quarter for mining services and continued growth of the MSALABS business. The average ARPOR of $182,000 was flat YoY but up 6.4% QoQ which is a positive surprise to our modelling. We expect this high ARPOR to come off slightly (we model $175,000 going forward) compensated by the increased fleet size. After this strong quarter the company remains on track to meet its US$280-290 million revenue guidance for 2022."
Given the closing size of the rig fleet, a Q4 performance of 80% utilisation and $175k ARPOR would give the upper end of that revenue range.
There is a couple of new contract announcements:
§ A multi-rig exploration drilling contract (including reverse circulation, diamond and air core drilling) with Perseus Mining at its Block 14 Gold Project in Sudan; and
§ A reverse circulation drilling contract with Evolution Energy Minerals at its Chilalo graphite project in Tanzania.
These, together with the B2Gold contract already announced and the continued growth of MSALABS, mean that 2023 should see further profitable growth.
Perhaps the biggest disappointment is the lack of any new share buyback announcement. With a forward EV/EBITDA of less than two versus peers who trade on approximately 4x, their own shares remain a better capital investment than almost all the other possible capital investments they could make at this time. Earlier in the year, they were buying back shares at 97p. Since then, brokers’ EPS forecasts have risen by around 40% in sterling terms, yet the share price is some 15% lower. Surely this makes a further buyback a no-
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