Q4/2019 Trading Update
Capital Drilling (LSE: CAPD) this morning provided its Q4/2019 trading update and its unaudited FY/2019 consolidated trading update. Capital achieved full year revenues of US$114.8 million, at the mid-point of US$110-120 million guidance. Revenues for the quarter were broadly in line with our expectations. Lower ARPOR due to greater proportion of exploration contracts and single-shift operations was offset by higher utilisation rates. Using this updated revenue figure, we now estimate EBITDA of US$26.6 million for FY2019, a margin of 23%, and profit after tax of US$9.8 million.
16 Jan 20
Flash Update: Q3 Trading Update
Capital Drilling (LSE: CAPD) this morning provided its Q3/2019 trading update. The key ARPOR (average monthly revenue per operating rig) metric (see fig 1.) is below our forecasts but revenue is slightly ahead (due to non-drill revenue from other businesses including MSA labs). There are also new contract wins starting in Q4 which has led us to slightly upgrade our FY/2019 revenue forecasts to US$115.5 million.
15 Oct 19
Diversified Mining Services Contract Win
Capital Drilling (LSE: CAPD) this morning announced the signing of binding agreements to provide a full range of mining services at Allied Gold’s Bonikro Gold Mine in Côte d'Ivoire alongside a US$3 million strategic investment. The new contract win marks a strategic move for the company, including for the first time providing load and haul operations, with control of the mine’s heavy mining fleet alongside five drill and blast rigs. Capital is working with Bonikro management to refine the mine plan following Allied’s recent acquisition, with a view to transitioning the agreement to a five year contract in H1/2020.
09 Oct 19
H1 Results: Another Strong Performance
Net Income after tax of US$5.1 million was 39% higher than our forecast of US$3.7 million, primarily due to a lower than expected depreciation charge for the half year and lower financing charges. EBITDA for the half year of US$12.6 million was 5% below our forecast of US$13.2 million. Capital’s EBITDA margin of 23% is in line with both Tamesis estimates and H1/2018 despite the additional overheads in establishing the West African business. Cash from operations of US$10.5 million was 22% lower than our expected US$13.3 million – attributable to a larger than expected change in working capital.
22 Aug 19
Flash Update: Q2 and H1 Trading Update
Capital reiterated it is on track to achieve full year revenue guidance of US$110-120 million, and whilst the headline revenue number for the half year is slightly below our expectations, we are confident that the company will be able to achieve guidance. The newly announced contract wins (described below), and some H1 seasonal effects in West Africa, imply a stronger H2 for the company. We are assuming an EBITDA margin of 24.2% for the half year, implying H1/2019 EBITDA of US$13.2 million, or 3.0x current EV on an annualised basis. We estimate US$5.5 million of free cash flow generated for the half year, equivalent to a 12.1% yield, which well covered the US$2.0 million dividend payment in May.
17 Jul 19
Flash Update: Q1 Trading Update Release
Capital reported it is on track to achieve full year revenue guidance and we are confident that the company will be able to deliver the US$29.3 million quarterly average revenue for the remainder of 2019 to hit the mid-point of guidance (US$110-120 million). The quarterly result is slightly below our forecast at the revenue level due to seasonal effects in Q1. Encouragingly, the company reported increased profitability from key contracts over the period – reinforcing our investment thesis from the FY/2018 results that Capital continues to outperform at blue-chip contracts with top tier mining companies including Kinross, Anglogold Ashanti, Resolute, Acacia, and Centamin. The West African hub continues to grow, highlighted by an exploration contract win with Golden Rim Resources (ASX: GMR) in Burkina Faso. The company is seeing robust tendering activity – any further contract wins will be incremental to the published guidance. Metals prices remain strong, and Capital is best placed to take advantage of any increased exploration spending by the majors and mid-tiers to replace depleting ounces or tonnes. We value Capital Drilling at 91p/share, representing 5x forecast 2019 EV/EBITDA of US$29.3 million and a 1.8x multiple on the current share price. Our forecast 2019 free cash flow is US$13.9 million, implying a 15.7% yield which easily covers the current dividend yield of 3.2%. At the current share price, Capital feels materially undervalued – trading at 2.7x 2019 EV/EBITDA, a strong balance sheet, covered dividend and further growth opportunities in the pipeline.
18 Apr 19
Flash Update: Cash Generation is King
Capital Drilling (LSE: CAPD) this morning announced its Q4/2018 trading update. Revenue for the quarter of US$30.5 million led to full year revenues of US$116.0 million, above the top end of 2018 revenue guidance of US$105 to US$115 million and Tamesis estimates of US$110.2 million. ARPOR decreased to US$181,000 for Q4/2018 from US$198,000 in Q3/2018, primarily reflecting new contract commencements utilising the exploration fleet, however this decrease was offset by increased utilisation, rising to 59% in Q4/2018 from 53% in Q3/2018.
17 Jan 19
Sector Note -
finnCap’s Industrials Brexit Survey. As Brexit is now only around 100 days away, we decided that – despite continuing uncertainties – it would be interesting to conduct a 10-question survey to investigate how management expects the small and mid cap Industrial sector to be affected by Brexit. We focused on what sensitivities they have to potential supply chain delays, raw material import prices, reductions in regulatory red tape and whether they expected changes to their ability to export to the EU, and if there are opportunities to boost trade with the rest of the world. Overall, 82% of companies responded that Brexit would be negative for their company with only 18% expecting no effect. Not a single company thought it would be positive. We hope that the survey responses will not only be of valuable insight to investors but also give company directors a broader consensus of how their competitors, customers and suppliers are all likely to react.
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19 Dec 18
New contract wins
The Company has announced two contract awards with Centamin and Sama Resources, which are both highly significant for different reasons. The contract extension with Centamin underwrites continuity of a substantial proportion of group revenues over a 5-year period, while the new contract with Sama is the first in the Cote d’Ivoire and highlights the potential of West Africa, since the Company strategically repositioned one-third of its rigs in this growth region. While we retain existing forecasts, these contracts greatly improve revenue visibility and therefore should increase investor confidence. Further contract awards would have a significant drop through to profits and offer potential forecast upside. The shares offer good upside to our 85p price target. These contract awards should be taken well.
25 Oct 18
Flash Update: Sukari Contract Extension
Capital Drilling (LSE: CAPD) this morning announced that its drilling contract at the Sukari mine operated by Centamin (LSE: CEY) has been extended for five years through to 2023. The company provides blast hole and grade control drilling in the open pit operations and has worked on site since 2005. Flash Update: Sukari Contract Extension
25 Oct 18
Small Cap Feast
Renalytix AI—developer of artificial intelligence ("AI") decision support and clinical management tools for improving early diagnosis, continual monitoring and drug development for kidney disease. incorporated in March 2018 as a subsidiary of EKF Diagnostics Holdings (AIM-EKF). total fundraising in the range £21 - 25 m. Mkt cap - c. £67.5- £71.0m. Due 2 Nov. Kropz PLC—an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa, a phosphate project in the Republic of Congo and exploration assets in Ghana. Looking to join AIM, offer TBC, market cap TBC. Due Late October. Azalea Energy—oil and gas production and development company based in Louisiana, United States. Net production of 13 MMcfe/D (2,200 boepd) and total 1P proved reserves of 91 Bcfe (15.1 mmboe), 2P reserves of 111 Bcfe (18.5 mmboe) raising up to $38m, expected mkt cap over $100m. Due 29 Oct Path Investments— First acquisition of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Seeking £10m raise. Due late Oct Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is exploring its options in relation to a potential move to the AIM market of the London Stock Exchange which, if it were to proceed, would likely take place over the next few months.
CAPD PVG PHTM ANG SCHO SCLP ENET ERIS AUTG TLY
24 Oct 18
Q3 update – on track
The group has announced a strong Q3 and YTD revenue, suggesting that the company is on track to achieve its guidance range of $105-115m. We maintain our existing forecasts based on revenues of $111.1m. West Africa now accounts for 1/3 of the fleet, with new contracts starting to kick in and utilisation for the group rising. There is plenty of scope to increase utilisation from further contract wins, with a significant profit drop through from additional contract revenues. The shares remain attractively rated and we view today’s announcement as being encouraging for the shares.
11 Oct 18
This edition we dedicate to the nascent electric vehicle market and associated supply chain. We have assessed the entire ecosystem in the UK and what technologies are currently available, and would highlight the following three conclusions: 1) The UK has developed a remarkably good ecosystem to enable the development and commercialisation of EV components and technology; 2) The dawn of the fully electric vehicle is going to bring about a radical simplification of the Automotive supply chain; and 3) EV isn’t the only way forward, and we see a clear role for Hydrogen, Biofuels and Synfuels.
CAPD AXS AMPH ALU AVG CAR FLO GHH MPE RNO RBN SOLI SOM SCE TRT TRI VEL ZAM HDD
10 Oct 18
Interims point to stronger 2H as utilisation rises
Interim results were in line with expectations and on track to achieve FY forecasts, which were raised in June. Q1 was the low point in revenue and rig utilisation. Once the relocation of rigs is complete in Q3, there will be 32 rigs in West Africa, where exploration is growing and active. Utilisation should progressively increase on known new contracts starting in Q3 as well as the expectation of further contract wins. Tanzania will remain a drag on sentiment until resolved. The shares look good value, and our 85p price target is based on an EV/EBITDA of 5.3x for 2019, compared to the current level of 2.7x.
16 Aug 18
H1 Results – firmly established in West Africa
EBITDA for the period of US$12.5 million was in line with our forecasts, and 8% higher than H1 2017. Net income of US$2.8 million came in slightly lower than our expectation due to higher than modelled depreciation charges, however still represented outperformance compared to both H1 and H2 2017, reflecting the recent operational improvements in the business. The company’s expansion into West Africa has resulted in a one-off working capital outflow however operating cash generation of US$12.9 million, prior to this working capital movement, was in line with our estimate of US$12.8 million.
16 Aug 18
H1 trading update – H2 rig utilisation set to improve
The group has announced its H1 trading update, providing evidence of improving Q2 utilisation rates and revenue growth, as rigs transferred to West Africa are deployed. Tendering and drilling activity is increasing in this high growth area. Additional exploration contracts in West Africa are set to deliver a stronger H2 performance and help underpin the increase in guidance made in June. As such, we retain our recently raised forecasts and 85p price target, which highlights that the shares are currently attractively rated, with significant upside.
10 Jul 18
Flash Update: Strong H1 Trading Update
Capital Drilling (LSE: CAPD) this morning announced its H1/2018 trading update. As expected, key metrics were strong as a result of increased utilisation of exploration rigs following the contract wins previously announced on 18 June 2018. Revenue for the period of US$54.5 million suggests that the company is on track to achieving upgraded 2018 guidance, increased to US$105-115 million, from US$100-110 million, on 18 June 2018.
10 Jul 18
Small Cap Brunch
Ovoca Gold (to be renamed Ovoca Bio PLC) - RTO of IVIX, a Russian company developing a drug candidate for the treatment of female sexual dysfunctions. No monies to be raised, market cap of £8.5m, due 30 July Nucleus Financial—independent wrap platform provider . FYDec17 revs £40.36m and PBT of £5.1m. Offer TBA. Due late July. Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa Immotion Group - aims to become the market leader in "out of home" Immersive Entertainment Experiences. Offer TBA. Due 12 July
CAPD DERR EML PHTM PRTC MYSL COS JWNG ABAL ACC
10 Jul 18
Raising forecasts on new contract wins
The company has announced several new exploration and delineation contracts. The contracts are in existing areas of operation and leverage existing capabilities, raising rig utilisation rates. Management comments that there has been an increase in demand for exploration rigs over recent months. Management has raised its guidance and accordingly we increase our revenue by 4.7%, significant drop through results in an increase in our adjusted EPS of 13.7% to 3.6ȼ. The shares have started to see the start of a recovery, having been deeply oversold due to Tanzanian risks. We still see significant upside from current levels towards our 85p target, driven by positive trading.
18 Jun 18
Flash Update: Further Contract Wins, Upgraded Revenue Guidance
Capital Drilling (LSE: CAPD) this morning announced that it has been awarded three new exploration contracts, and two contracts with producers in West Africa. This is in addition to the three-year surface drilling contract at Resolute’s Mali operations announced on the 11th April 2018. As a result, the company is increasing revenue guidance to US$105-115 million from US$100-110 million.
18 Jun 18
Q1 trading satisfactory as rigs move to W Africa
The group’s Q1 trading update points to the group trading in line and on track to achieve its full-year forecasts. The temporary dip in quarterly revenues was previously flagged and related to the movement of idle rigs to West Africa, where market conditions and growth opportunities are much stronger. The group expects to win further contracts as the year progresses, which should enable rig utilisation to improve. The shares remain significantly under rated due to the Tanzanian regulatory situation and do not reflect the significant operational improvements achieved.
26 Apr 18
Flash Update: Q1 Trading Update Release
Revenues are in line with both Tamesis forecasts and full year guidance of US$100–110 million. As expected, core revenues are underpinned by quality contracts resulting in a higher ARPOR, offset by lower fleet utilisation. The previously announced three-year surface drilling contract at Resolute’s Mali operations has expanded this high quality contract base. Expansion into West Africa continues with 12 new rigs now landed in the region and full office and warehousing facilities in Mali and Côte d'Ivoire.
26 Apr 18
SP Angel – Morning View
Bluebird Merchant Ventures* (BMV LN) – Work ongoing at Gubong and Kochang mines in South Korea | Capital Drilling (CAPD LN) – Management forecast better demand with 15 rigs in transit to new contracts | Gem Diamonds (GEMD LN) –Diamond sales update | Highland Gold (HGM LN) – Proposed acquisition of Chukotka assets | Savannah Resources (SAV LN) – Bulk sampling underway at NOA | Strategic Minerals* (SML LN) – Leigh Creek work programme and Cobre update | W Resources (WRES LN) – Tarouca drilling
CAPD BMV GEMD HGM SAV SML WRES
26 Apr 18
Flash Update: Long Term Contract Win in West Africa
Capital Drilling (LSE: CAPD) this morning announced that it has been selected as preferred contractor at Resolute Mining’s (ASX:RML) operations in Mali. The company’s existing short term surface drilling contract at Syama is to be replaced with a three year contract at Resolute’s projects and joint venture operations commencing 1 July 2018, complementing the existing three year underground contract at Syama. Capital Drilling currently has three surface rigs at Syama, and may be able to use excess capacity of currently idle exploration rigs (24% utilisation in 2017) to complete this contract. This looks to be a strong start to the company’s strategy to grow their platform in West Africa and we look forward to further contract wins. We value Capital Drilling at 83p/share, representing 6x forecast 2018 EV/EBITDA (2018E EBITDA US$25.4 million) and a 2.2x multiple on the current share price.
11 Apr 18
FY results – encouraging margin gain
Full-year results were encouraging and were $1.7m ahead of our PBT forecast, accompanied by a better than expected dividend and strong operational cash flow. 2017 was a year of transition. Existing production contracts have performed well, while rigs are being moved to West Africa to service new production contracts. Focus on operational efficiencies helped boost margins to 11.4%. No change to forecasts. Sentiment remains focused on Tanzanian issues, which remain unresolved, but should also recognise a strong improvement in operational performance. We maintain our 85p price target.
16 Mar 18
2017 Annual Results Released
Capital Drilling took advantage of improved commodities markets to record an increase in 2017 revenues to US$119.4 million, a 19% increase from 2016 (US$93.3 million). Higher revenues and margins had a positive impact on underlying earnings, with group EBITDA in 2017 nearly doubling year on year to US$24.3 million from US$13.1 million.
16 Mar 18
SP Angel – Morning View
Avocet Mining (AVM LN) – Sale of Wega Mining | Capital Drilling (CAPD LN) – Rig rates and sales recover as exploration activity grows | Phoenix Global Mining* (PGM LN) – Increasing our valuation as a result of recent nearby cobalt transaction | Premier African Minerals (PREM LN) – Placing to cancel Death spiral warrants | URU Metals (URU LN) – Platinum Group Metals seen in Nickel, copper intersections at Zebediela project
CAPD AVM PREM URU PXC
16 Mar 18
Year-end trading update
The Q4 update confirmed revenues up 28% at $119.4m – marginally lower than our forecast, but with stronger than forecast margins giving unchanged profit guidance. For 2018, revenue guidance has been reduced with margin progress maintained. We therefore lower our profit forecast by 23% to $8.8m. There has been little change to the Tanzanian situation with exploration activity hit but production contracts continuing. Mining market conditions are improving and we are hopeful that further new contract wins can be secured in West Africa that should accelerate profitability in H2. Our PT reduces from 105p to 85p in light of the lower trading outlook.
01 Feb 18
Highlights this quarter: Economics: Generally, the data points to modest growth continuing, with a more positive trend in PMI surveys suggesting decent m manufacturing momentum over the next six months. Currency weakness continues to be a double-edged sword for U K manufacturers, with exporters gaining competitiveness while input prices have risen. There has recently been a divergence of sterling’s performance against the euro and the USD. Those in commodity or competitive product areas may well have seen margin erosion, while many in intermediary goods have already passed on price increases to their customers. With low unemployment, the prospect of tighter labour markets post-Brexit and public sector pay caps starting to come off also signals the potential for some labour inflation, long absent from the UK industrial scene. Topic of the quarter: We believe that powerful macro and sectoral pressures will drive further significant changes to the manufacturing supply chain over the next few years. We investigate some of these pressures, with the move to outsource suppliers to low- cost centres, like China, now seeing a slight reverse flow with some restoring to shorten complex and often inflexible supply chains. We see systems technology facilitating greater supply-chain control and efficiency. Brexit will present challenges to the UK supply chain with price and time to market barriers likely to rise, presenting challenges to the UK’s highly integrated and time-sensitive supply chain. Slick distribution infrastructure and greater information sharing with suppliers are likely to prove winning strategies in optimising logistics and gaining stock efficiencies. Sector valuation: The industrials sector has continued to exhibit strength, with small-cap industrials outperforming by 2 % on last year and larger cap industrials by 17%. Currency and improving economic data have been a positive for the sector. While some other sectors have seen a pick-up in profit warnings over recent months, industrial technology companies have announced generally positive or in-line trading updates that have helped to drive the small-cap Industrials to an EV EBITDA of 8.4x and a P/E of 16.7x with the traditional small-cap discount narrowing.
CAPD SIXH DSCV AXS AMPH ALU AEP AVG CAR FENR FLO GINV GHH IOF MPE RE/ RNO RBN SOLI SOM SCE TRI VANL VEL ZAM TRT HDD
27 Oct 17
SP Angel – Morning View
Capital Drilling (CAPD LN) – Rig rates and sales recover as exploration activity grows | Horizonte Minerals (HZM LN) –Filing of licence applications for Araguaia | Kodal Minerals* (KOD LN) – Work plan for Bougouni | Shanta Gold (SHG LN) HOLD – Target price being updated – Q3 production update; FY operations remain on target | Tertiary Minerals* (TYM LN) – Progress update | Trans-Siberian Gold (TSG LN) – Q3 Production Results
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19 Oct 17
Good Interims but Tanzania overhangs sentiment
The group has announced positive Interim results, with a return to profitability helped by an increase in exploration and production activity as well as improved operational efficiency. Revenue guidance has been eased slightly with profit forecasts maintained. There continues to be good operational momentum, although the Tanzanian situation continues to overshadow the shares and makes a target valuation problematic.
17 Aug 17
SP Angel – Morning View
BlueJay Mining (JAY LN)* – program for summer field season at Pituffik and Disko in Greenland | Capital Drilling (CAPD LN) – Reports strongest H1 revenue since 2013 | Centamin (CEY LN ) – 2017 gold production guidance maintained following Q2 output figures | Georgian Mining* (GEO LN) – Tony Frizelle resigns as non-executive Chairman | Mkango Resources* (MKA LN) – Platts highlight renewed interest in Rare Earth projects as prices recover and | Tesla launches Model 3 | Golden Star Resources (GSC CN) –High grade intersections from infill drilling at Prestea underground | Patagonia Gold (PGD LN) – Commissioning of agglomeration circuit at Cap Oeste Este underway | Savannah Resources (SAV LN) – Raising £1.3m
CAPD JAY CEY GEO MKA GSC SAV PGD
10 Jul 17
We recently hosted our annual Industrial Technology dinner with 14 companies, many of which are active in the materials science arena; having focused previously on composite materials in the aerospace sector, in this edition of Machinations we focus on graphene, with its unique and potentially game-changing qualities and potential applications. Investments in this area remain fairly early stage, but could potentially reap huge rewards. Graphene is well represented in the UK small-cap market by several players.
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27 Jun 17
Initiating Coverage: Early cycle beneficiary of increased mining sector spend
Following a prolonged downturn, discretionary spending in the mining sector has begun to build. Recovered commodity prices and equity valuations have catalysed equity issuance which, alongside improved cashflow, has kick started exploration spending from critically low levels. For investors looking to participate in the mining sector recovery without direct exposure to individual exploration projects the drilling sector presents a sensible strategy in our view.
04 May 17
Strong Q1 trading update drives significant EPS upgrades
The group has released a very encouraging Q1 update. The revenue line is the strongest it has been since 2013, with exploration drilling activity recovering and recovery expected to continue in underlying markets. It has also highlighted a number of new and repeat contracts, pointing to momentum continuing through the year. We have raised our forecasts on the back of management’s revenue guidance range of $120-130m, which prompts us to upgrade EPS by 30% in 2017, with a conservative knock on to EPS of 15% in 2018. We therefore also increase our price target by 15% from 95p to 109p. The shares should react strongly to today’s statement.
02 May 17
FY results in line, with turnaround in exploration activity
Full-year results were in-line with the recent trading update. Market conditions continue to improve, with a strong improvement in exploration activity. We make no change to our forecasts. The shares have recently seen some profit taking after a strong run, which opens a valuation opportunity as the market turnaround provides strong medium-term potential. Our 95p target price points to strong upside.
16 Mar 17
4imprint (FOUR): 6% dividend yield for a growth stock? (BUY) | Cambridge Cognition* (COG): Amgen uses CANTAB technology in trial (CORP) | Seeing Machines* (SEE): H1 results show steady operational progress (CORP) | Allergy Therapeutics (AGY): Pollinex Quattro Birch Ph III EU trial starts (BUY) | Capital Drilling* (CAPD): FY results in line, with turnaround in exploration activity (CORP)
CAPD FOUR COG SEE AGY
16 Mar 17
Update points to an uplift in activity in 2017
The group’s year-end trading update points to underlying mineral market conditions improving. Revenues have exceeded our expectations, with new contracts incurring higher short-term costs. Thus 2016 profitability was lower than we forecast. New contracts boost 2017 prospects and revenue guidance has been raised. We raise our 2017 EPS forecast from 0.8c to 2.3c. The shares continue to offer good value, with substantial upside at this point in the group’s recovery phase. We raise our price target to 95p, based on an undemanding EV/EBITDA of 6.4x.
06 Feb 17
10 for 17
As always at the start of a year, there are significant uncertainties about the year ahead but I think in 2017, the level of uncertainly has decisively moved up a gear. In fact, a leading economist at the LSE, Ethan Ilzetzki, was recently quoted as saying “I view the current global economic environment as the most uncertain in modern history”. Wow.
CAPD AGY FCRM GBG GEMD HAT HUR IDEA 932 VCP
09 Jan 17
600 GROUP | ACCSYS TECHNOLOGIES | AGGREGATED MICRO POWER HLDGS PLC | ALUMASC GROUP | ANGLO-EASTERN PLANTATIONS | AVINGTRANS PLC | CAPITAL DRILLING LTD | CARCLO | FENNER PLC | FLOWTECH FLUIDPOWER PLC | GLOBAL INVACOM GROUP LTD | GOOCH & HOUSEGO PLC | HARDIDE PLC | HAYWARD TYLER GROUP PLC | IOFINA PLC | M.P.EVANS GROUP | R.E.A. HLDGS PLC | REDT ENERGY PLC | RENOLD | ROBINSON | SOMERO ENTERPRISE INC | SURFACE TRANSFORMS PLC | TRANSENSE TECHNOLOGIES PLC | TRIFAST | ZAMBEEF PRODUCTS
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19 Dec 16
After the severe short-term reaction to the Brexit vote, the UK manufacturing PMI now signals a return to more normal patterns and the stock market has recovered. Nevertheless, confidence remains weak. In the short term, it has largely been a phoney war. Sterling weakness has provided an opportunity for exporters. However, imported raw materials have also increased in price, as seen in the September inflation report with the input price index up 7.6%. Factory gate prices are lagging behind so beware of factory margins being squeezed. The reporting season has largely been devoid of serious shocks, with some order placement delays. However, due to the post Brexit fall in bond yields Carclo signalled a significant rise in its pension deficit, which wiped out its distributable reserves and caused it to cancel the previously declared dividend. We see potential for further bad news on pension deficits, with a number of larger industrials having significant pension liabilities that can only have grown since the referendum.
CAPD SIXH AMPH ALU AEP AVG CAR FENR FLO GINV GHH HAYT IOF MPE RE/ RED RNO RBN SOM SCE TRI ZAM TRT HDD
28 Sep 16
Interim results – new contracts offer a stronger H2
Key operating metrics are improving, while up-front costs on new contracts have marginally held back H1 profitability. A full revenue contribution from these contracts offers a much stronger profit in H2. Internal improvements, such as the lean operating model, offer commercial advantages that are being converted into new contracts. New exploration tender opportunities are arising on the back of the higher gold price. We maintain current year profit forecasts, though EPS is held back by a higher tax rate. In 2017, we raise EPS by 18%. We increase our price target to 50p, with the shares attractively rated and significant scope for further outperformance.
17 Aug 16
Robinson* (RBN): Uncertainties delaying new business (CORP) | Gem Diamonds (GEMD): Interim results (BUY) | Shanta Gold (SHG): Interim results (BUY) | Independent Oil & Gas* (IOG): Skipper appraisal result (CORP) | Imaginatik* (IMTK): Prelims in line, focus on execution (CORP) | Capital Drilling* (CAPD): Interim results – new contracts offer stronger H2 (CORP) | The Joy of Techs: Technology sector quarterly – analyst interview | Hurricane Energy (HUR): Initiation of coverage – analyst interview (BUY)
CAPD RBN GEMD SHG IOG SEE HUR ABAL
17 Aug 16
Could Brexit be a positive for the UK Industrials sector? While the EU and UK are important to each other in terms of trade, the level of that importance is asymmetric: 44% of UK exports go to the EU and a further 10% go to countries with free trade agreements with the EU; only 15% of EU exports go to the UK. As a result, we feel that UK bargaining power is relatively weak and we need to accept the possibility that the UK drops out of the single market and trades under WTO terms with Europe. The extent to which this is a positive or negative for UK Industrials depends entirely on the value of Sterling versus the Euro or US Dollar. We analyse this and conclude that with a 7% (or greater) depreciation of Sterling (versus pre-Brexit levels), all the costs associated with WTO trade are more than compensated for. Big exporters become strategic winners and big foreign FX earners become financial winners. Largely domestic players are at risk. Export or die!
Economic DataIndices and Markets
18 Jul 16
In Issue 2, we concluded that the VW emissions scandal was likely to result in faster development and adoption of hybrid and electric vehicles. In this issue, we discuss what we think will be a key megatrend of the 21st century: the strong push to decarbonise vehicles AND power generation. The implications for the Industrials sector are substantial and we attempt to identify some of the key winners and losers of what we think is now an unstoppable force. The full list starts on page 8 but key winners we identify are: Lithium, Copper, Hydrogen, Composites, batteries and fuel cells, electric motors, wind turbine components, solar cells, ac/dc convertors and all forms of power storage.
CAPD SIXH AMPH ALU AEP AVG CAR CKT FENR GINV GHH HAYT IOF KBC MPE BOU RE/ RED RNO RBN SOM TRI VLX XAR ZAM TRT SVCA HDD
04 Apr 16
The minerals cycle is at its bottom; while the timing of the recovery is uncertain, the group is in a strong, defensively orientated position with its customer base focused on long-term production contracts with the mining majors. The business is cash-generative, with net cash and a well invested fleet. When demand returns, it has significant available equipment to deploy, and its strong operational gearing should give substantial profit recovery. The shares look attractively valued, with substantial future potential upside and an appealing yield.
17 Mar 16