Pinned straw:
The Q3 Update released today is very much a continuation of the strong H1 update, PcP figures are exceptional but mostly meaningless given how poor FY25 was. The outlook is to continue at the current pace so below I have now-casted the full FY26 based on Q4 repeating the Q3 performance:
The most notable items were:
- $4m increase in working capital from increased receivables which pushed FCF negative for Q3. This was detailed in the update with reference to operating cycles.
- Capex spend of $7.8m for the quarter was very high at about double average. This was not explained in the update and given the rig count dropped from 90 to 88 in the quarter it’s a bit of a mystery! Maybe someone else has info on this?
Given the price is well up on the 33c price at which I checked value at in December I have updated the matrix I used below:
Value multiples continue to suggest value despite a ~50% price increase. This is based on the assumption the FY26 operating performance is able to continue to be repeated. Gold and Coal demand/price continues remain strong and global issues seem to be supportive for at least the next few years which helps protect the downside. On the upside they have an additional 27 rigs that can be utilised, which assuming consistent revenue/rig is a ~44% revenue upside opportunity without buying additional rigs.
As such I continue to see the risks more to the upside and intend to maintain my position which is still a little underweight, hence set to the risk of the company.
Disc: I own RL
I noticed that capex spike too @Tom73
Unfortunately, I've been offline all week and wasn't able to call into the call as it would have been good to get clarification. The bull case is they are getting rigs ready for deployment and the CFO did suggest that was the case, as well as indicating that was likely to continue into Q4 with FY capex to some in around $20 million "or a little under". He suggested that capex was likely to normalise to high-teens in FY27, but I assume that is dependent on there being a more usual job commencement rate. I'm a little surprised what the uptick in capex signifies didn't get drilled down on (pun only slightly intended). It might be a decent early signal into FY27.
Also, lots of talk about green shoots in coal but not a single mention of gold in either the update or the call. Not sure what is going on there as it was a constant theme at the last update.
Other observations:
- fuel cost exposure is not zero but is negligible as they pass on most of their own costs and client is responsible for their costs. Not experiencing fuel availability issues.
- Good start to April mentioned several times
- Anglo revenue used to be $40-50 million. This year likely to be closer to $20 million. If Grosvenor is reopened there is an opportunity to return to previous levels.
- Re-iterated their simple pricing model of 30% GM, 10% overheads, 20% EBITDA.
- Capital allocation: 4 pillars - debt reduction (COMPLETE), share buybacks (HAPPY WITH SP), leaving dividends and/or M&A as likely outlets.
I'll take this opportunity to lay into Investor Relations companies who facilitate these types of calls, specifically calling out Bridge Street. If you're an IR company grub and only take written questions and then parse the questions as you ask them of management, then you better know your shit or you're going to get the parsing wrong. I'm sick of asking a question only for management to be asked a completely different question because the VP of his own lunchbox wants to sound clever in front of their client. If, as is usually the case, you don't know as much about your client as the investor does, just read the bloody question verbatim.
Good quarter though!