A good result and the SP already at Euroz Hartley's 20c valuation. Some increased capital spend coming in buying a new rig and expanding the Project engineering manufacturing with a new facility. Reduction in conversion of earnings to Operational Cash Flow due to less favourable terms with Tier 1 clients but potential for double shifting and stability of contracts. Should be resilient to a drop in iron ore demand due to Tier 1 contracts and diversifying to provide a wider revenue base.
Now my biggest holding in RL and 2nd in SM.
Summary of group results for FY2023: -
Revenue from Operations $64.96 million - exceeded previous corresponding period revenue from operations by $18.66 million.
Operational Cashflow was $9.66 million. The reduction in the conversion of earnings to Operational Cash Flow compared to the previous corresponding period is primarily a reflection of increased working capital requirements created by the redeployment of drill rigs to Tier 1 iron ore miners with less favourable trading terms.
EBITDA $12.45 million -
NPBT $7.08 million -
Net Tangible Assets $30.50 million -
Cash and Cash Equivalents $8.31 million
The board and management continue to maintain the view that one of the largest and growing impediments to ongoing iron ore production is the removal and disposal of surplus water.
Pentium water
The business experienced material expansion in staff head count growing to more than 20 advisors, developing its model to derive more revenue from lump sum project work. Advisory model evolved to include Company backed internal projects and has developed a portfolio of internal early stage projects focussing on opportunities across water pipeline infrastructure and associated mechanisms to control, own or toll water. These early stage projects in turn are creating partnerships and new opportunities associated with the supply of large volumes of water for irrigated agriculture and carbon sequestering.
Pentium Hydro
The outlook for Pentium Hydro remains robust with demand for dual rotary rigs particularly strong. Due to limited supply of dual rotary rigs in the Australian market, in hand with the long lead times and prohibitive expense to import new dual rotary rigs, Pentium Hydro anticipates opportunities to increase the number of rigs double shifting for clients to meet this demand.
As such, Pentium Hydro has recently identified an opportunity to acquire an additional used dual rotary rig. Subject to proceeding with the rig’s acquisition, it is anticipated that this rig would be acquired and rebuilt to Tier 1 standards within FY2024.
Operational improvements will continue to be rolled out in FY2024 such as the establishment of a Pilbara based critical spares facility which will help reduce any downtime associated with programmed maintenance and breakdowns, as well as a continued recruitment drive to bring more experienced water well drillers, supervisors and managers into the business.
Pentium test pumping
The next generation test pumping unit did not meet its initial anticipated deployment timeline of 30 June 2023, with the extension of the delivery date due to delays in the construction and delivery of the reel unit out of Queensland.
The second unit is on track to be commissioned, deployed and operational inside the September quarter of FY2024 with multiple avenues of client enquiry providing opportunities for high utilisation rates from the outset. Incorporated within the new unit is the ability to injection test in addition to test pumping. This has been made possible via the inclusion of injection technology acquired from Project Engineering. To the Company’s knowledge, there is no other provider in Australia that can provide a single unit that can both test pump and injection test. Management anticipates that injection testing has the potential to be a high growth and material offering in Pentium Test Pumping’s suite of services in future periods.
Project engineering
Opportunities to start moving the business to a production line model rather than manufacturing on a ‘just in time’ basis. In response to this anticipated growth, ProEng is currently sourcing new premises that will enable the establishment of an expanded MAR unit production line as well as bolstering staff numbers and expertise. These strategic initiatives will require a commensurate level of increased investment.
Group
The diversification across the vertical service offerings will help create long term shareholder value by driving expanded valuation multiples traditionally afforded to multi-faceted business.The Company is well funded, anticipates material earnings growth and has identified a range of organic and acquisitive growth prospects. As always, the Company’s board and management will continue to focus on driving long term and sustainable value for its shareholders.