RE: Terrific H1 results - and another revenue upgrade22 Aug 2022 11:46
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."
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