Management presented a stonkingly good result for H1 with no song and dance, the emphasis being that this is business as usual. So the soft FY25 results are the exception, which they said at the time (weather and large ramp up costs) and are proving true.
Some points on the result:
- Special div 4c FF is a ~13% yield on pre announced price of 43.5c and they remain focused on their 4 pillars approach to capital management. As such will view choices between dividends, buy backs, acquisitions and debt reduction as they come up rather than pre-committing. Noting that they are always looking for acquisitions (and rejecting) but nothing currently on the table.
- They see demand for rigs is increasing particularly for gold, some green shoots for coal and with 66 engaged out of 88 in fleet – opportunity to improve financials. Rig count used and idel evenly split between surface and underground & expect more to be in operation by mid year than currently.
- Loop valued at 24m based on Sumitomo’s investment, have capacity to service this as it grows.
- Result includes 1.4m impairment included but is recoverable. Depreciation and interest lowering helped and PcP improvement due to problems in prior period with this period representing normalised but still not optimised trading results.
- Working capital down 20% due to improved receivables
- H2 to date has been better than usual due to weather and rig use, but they remain disciplined on pricing which is shown by the available rig count.
Kicking myself I didn’t up my last top up order from 30c to 35c in January and would welcome a price pull back on the now 50c+ price. I will have to do more detailed review to justify purchasing more at the current price but if I didn’t hold I would probably buy a monitoring position.
At +20% the market cap is ~120m. It has generated 8m NPAT in the half, ie PE run rate of 7.5 and generated $11.8m in FCF (5.1 x annualised FCF) if you take out the favourable working capital movements, 17.0m if you leave them in.
It is clearly offering good value even after the parabolic price movement YTD.
PS: thanks for the nod on Mitchell Services @Noddy74 a year or so ago.
Disc: I own RL