Capital Share Discussion Threads

[fozzie] 28/7/2022 13:23

I thought we had cracked it as we moved towards 110p a few months ago. It doesn't seem to matter what opinion is on this share, it just does not want to re rate to a more reflective level. I agree with your post above Yas, start improving the divi because capital appreciation does not look to be forthcoming.

[yasx] 28/7/2022 12:51

"As has been the case for nearly every trading announcement in the last three years these results are strong and point to further strength and growth."


Well, that might be so, but three years today the shares were at 75p - they have only increased marginally since then despite one upbeat announcement after another. This, one has to accept,is a share that does not attract many investors. An improved dividend might be a better way to reward holders since price appreciation does not seem to be on the radar. I dread to think what would happen if they provided the market with a poor update....

[rivaldo] 28/7/2022 10:48

Tamesis Partners released an update not summarised here yet after the excellent H1 trading update.

They have a 160p target price.

Their forecasts imply 10.74p EPS this year for a P/E at 90.2p of 8.4.

They then imply 20.45p EPS for next year given a P/E of just 4.4!

They also see a 4.7% dividend yield, and the huge free cash flow giving rise to a $50.4m net cash position at Dec'24.

And these forecasts are "conservative"....



Extracts:

"Solid performance making new highs Capital Limited (LSE: CAPD) released its Q2 and H1 2022 trading update this morning. Overall, it was another impressive quarter and half year leaving the company comfortably on track to meet record revenue guidance of $270-280m (which management maintained). All key operational metrics (see Fig 1.) were within an acceptable range of our forecasts except perhaps fleet utilization which was 9% ahead reflecting the strong business conditions for which the company continues to guide. Indeed, management notes that it is the “strongest demand environment since the company’s inception”."

• Contract awards remain strong. The company continues to win new contracts and extend existing ones throughout Africa. Notably the counterparties to these contracts are of increasing size and quality with B2Gold now a client following a RC drilling contract award. The $150m drilling services contract with Anglogold Ashanti at Geita has already been announced in Q2 and is the second largest award of a new business in the Company’s history. Rig count closed at 116 with the company pointing to further growth to c.120 in the second half.

• MSALABS relationship with Chrysos a major success. Also already announced but worth noting was the expansion of the global partnership with Chrysos. The company is now guiding to 21 PhotonAssay units by 2025 vs six by YE 2022 (which is on track). Each Chrysos unit is expected to generate annual revenues of US$3-5 million so we are looking at c$80m+ of revenue from MSALABS vs just $3m in 2019 . This revenue growth has come with minimal capital outlay.

• Fleet utilisation strongest on record. Just when we thought it couldn’t go higher fleet utilisation increased to 85% in Q2 fully 10% more than we are forecasting for the full year. This, along with a record 116 rig count, augurs well for the full year."

"Investment Case

As has been the case for nearly every trading announcement in the last three years these results are strong and point to further strength and growth. With activity in the mining sector still booming and long-term contracts locked in, we see safety in the medium term revenues and margins, particularly as there is some degree of protection in the long-term contracts. Meanwhile the shares are trading on EV/EBITDA multiples of 2.4x and 2.0x 2022 and 2023 respectively, PE ratios of 8.4x and 4.4x and a dividend yield rising to 4.7%. This implies next to no growth in the business, yet our forecasts show an 8% CAGR in EBITDA from 2022 to 2024 and a 46% CAGR in free cashflow taking net debt from $21.6m at the end of 2022 to a net cash position of $50.4m by December 2024. We believe that, if anything, these forecasts are conservative. We see the current share price as an attractive entry point and maintain our price target of 160p."

[hpcg] 27/7/2022 20:19

I suspect some potential investors and sellers might about-face after Powells language, the reaction of the gold price and the dollar. I presume the potential for higher rates and a lower gold price has been weighing on their decisions.

[solooiler] 26/7/2022 21:25

What are peoples year end price targets? I'm thinking 110p

[shanklin] 22/7/2022 12:24

Yes, an excellent read as ever from ds2.

Slight shame SDI wasn't covered.... perhaps next week :-)

[rivaldo] 22/7/2022 10:55

Small Caps Life have emailed out their latest weekly summary, including this on CAPD after the trading update (written by dangersimpson2 if I'm not mistaken):

"Capital Limited (CAPD.L) - Q2 2022 Trading Update

The number of rigs utilised is quite a bit higher than Mark expected at 97 vs 92. 85% utilisation is about the maximum they can achieve while still moving rigs between contracts and maintaining the fleet.

The average revenue per operating rig is a little bit lower again in Q2. The drop here in Q1 led some to question why, so seeing it drop further may worry some, particularly when we know the market is tight. However, there are some reasons why ARPOR is lower:

A higher proportion of underground rigs. About 20% of the fleet is now underground rigs, which command lower rates. However, the EBITDA margins are similar. Given that underground rigs are cheaper to purchase, the return on capital on the underground fleet may actually be higher.

Rates are not the biggest driver of ARPOR. Factors such as how long a contract has been operated (and therefore operations have been optimised) and whether they can operate double vs single shifts matter more. Rates themselves are being priced at around 15% higher than the same time last year.

The other bad news was the value of the listed investments has suffered due to the weak equity markets:

The portfolio recorded investment losses (unrealised) of US$10.3 million. The total value of investments (listed and unlisted) was US$47.3 million as of 30 June 2021, versus US$60.2 million at the end of 2021;

However, this loss is lower than a simple mark-to-market would suggest, showing some outperformance from trading these. And they’ve taken cash out, which is good to see:

…the portfolio generating net sales after investments of US2.6million, with the proceeds directed toward group capital expenditures.

They also highlight some of the previously announced recent positive news that has been separately announced:

First contract with B2Gold Corporation at the Fekola Gold mine in Mali, one of largest gold mines in Africa: Capital has been awarded a reverse circulation drilling services contract.

They now have a toehold into the first and second largest gold mines in Africa and will be seeking to expand their presence in these.

MSALABS recently announced an expansion of its global partnership with Chrysos, now guiding to deploying 21 Chrysos PhotonAssay units by 2025;

The growth here is phenomenal, as are the potential margins and low-capex required to expand. Interestingly, they say MSALABS starting to drive work to the drilling side, not just the other way round. It shows that it is starting to be a strong business in its own right.

Announcing these updates separately and the tone of the trading statement suggests that the management are getting increasingly frustrated at the lack of market reaction:

Capital Drilling: Strongest demand environment since the company's inception…

Capital Mining continues to perform strongly…

Q2 2022 has again seen extremely strong demand with the outlook remaining supportive;….

Tendering activity across all business units remains robust, with a number of opportunities progressing;…

We are currently seeing the strongest demand since the Company's inception, in contrast to the recent perception from global equity markets.

Our hope is they turn this weakness into an opportunity with a large buyback announcement to coincide with the results.

The guided revenue range is reiterated. However, the strength of trading in Q2 and the continued buoyancy of the end markets confirmed this week means that this looks even better value at 90p than it was a couple of weeks ago when it was trading in the mid-70s."

[rivaldo] 21/7/2022 13:53

Berenberg have raised their target price to 168p (from 156p) and say Buy:



That's the sixth time they've raised their target price this year :o))

[rivaldo] 20/7/2022 10:22

Been on hols, so great to see (1) the excellent Q2 trading update and (2) the huge global expansion of the Chrysos partnership. I'm sure the market hasn't yet fully cottoned on to the full value of Chrysos, with over $80m of revenues per annum now anticipated from MSALABS in the relatively near future.

With $138m revenues in H1, CAPD are surely highly likely to beat the guidance of $270m-$280m for the year, given "the strongest demand since the Company's inception" as per the outlook statement.

It's worth ruminating on the outstanding investment portfolio figures posted by darlocst. These must beat the performance of almost any other investment manager anywhere:

Net $11.5m invested since Jan 2019, total return 302%.
Value at June 30 $47.3m.
$26.4m revenue generated from investee companies in H2 2022.

I note that today's Sukari update from CEY has been well received by the markets.

Hopefully the current share price upturn will run up to and past the H1 results on 18th August since we know the numbers and outlook will be so rosy.

CAPD remains extremely cheap at these levels imho.

[otemple3] 19/7/2022 22:17

50% CAGR since inception in 2019 is stunning

[jonesj] 19/7/2022 21:40

The investment fund has delivered positive performance in the previous 2 years. To expect that part of the business to rise every year is too much.

[otemple3] 19/7/2022 13:19

On the call JB detailed the myriad of things that impact ARPOR, as not just price e.g. utilisation & type of drillingRef weak pricing he said current rates are c.15% higher than last year so the only pricing pressure appears to be up ?

[hpcg] 19/7/2022 11:48

If the investment portfolio was absorbing money then it would complicate things. It isn't, so it doesn't. One can subtract the value from NAV, the (positive) cash flow from cash flow, and the net gain / loss from PnL. By very definition there is no liability attached to the equity holdings.

[shanklin] 19/7/2022 11:38

It’s probably too complicated for the fund managers but, even if one valued the investment portfolio at zero (to simplify matters for them) CAPD still looks cheap.

Of course if one wants to adjust for the jurisdictions in which CAPD operates, that is a different but perfectly reasonable argument.

[troc1958] 19/7/2022 11:38

Very happy with the update.Couple of points which may be the reason for a subdued market reaction:Q2 22 ARPOR $171k down from $180k in Q2 21. An indication of higher competition in market and thus a price squeeze. However their utilisation has gone up from 79% to 85% (Q2 21 vs Q2 22) and rig numbers are growing, which is very positive.I still believe at 90p the company is undervalued, but it's risk OFF at the moment. Patience is required.

[fozzie] 19/7/2022 11:31

It is an issue though as several fund managers pointed out in a recent ‘pitch to the City’ the three fund managers all said they didn’t like the investment portfolio and that it muddied the waters when trying to value the company.

The market underwhelmed by todays rns.

[darlocst] 19/7/2022 11:25

They covered the investment portfolio on the call today.
Net $11.5m invested since Jan 2019, total return 302%.
Value at June 30 $47.3m.
$26.4m revenue generated from investee companies in H2 2022.

I don't see an issue here. Its been a highly successful strategy and delivered a great return for shareholders and clearly hasn't been a distraction from the core business which is seeing record demand alongside the exciting growth potential of MSALABS which is forecast to achieve significant scale over next 2/3 years.

[yasx] 19/7/2022 09:30

Good update, overshadowed once again by the investment fund, which has not returned a good result which was expected given the decline in global markets.

CAPD need to sort out their strategy since the market seems to take little notice of incremental progress in the core business because the investment side always seems to give rise to a confusing picture of what they are really all about.

[thirty fifty twenty] 19/7/2022 07:58

superb TU!

of course the revenue fcst seems very cautious...
personally i am working on the scenario that the mgt are being realistic,
but all that is relevant is the profit/cash flow...
we investors use the turnover as a proxy for this but actually its not the most relevant figure... so maybe mgt know that some of the moving contracts (high revenue/low margin) are tailing off and thus the revenue fcst is a genuine best guide at this stage. all in all not relevant to some degree and i am very happy to defer to figures in Tamaris research for profit and growth potential.

> 90p the chart looks exceptional on a multi-year view esp relative to the general market

All IMHO, DYOR + BoL
CAD is in my top5

[johnrxx99] 19/7/2022 07:54

In the early days yes, funding helped them win business. They have now reach a point where it is not essential - their performance wins business. The revenue from the Capital DI companies is a small part of their T/O.

Time to move on and try and realize as much as they can - some will be difficult to shift though. Just my opinion.

[rimau1] 19/7/2022 07:33

Revenue guidance completely contradicts the strong messaging so plenty of scope for an upgrade. Adding H2 2021 to H1 2022 gets us to $266m versus guidance of $270m-$280m.

[hpcg] 19/7/2022 07:24

As investors and potential investors are worried about the outlook enough to ignore the current cash generation "We are currently seeing the strongest demand since the Company's inception, in contrast to the recent perception from global equity markets." says it all. More interestingly they are explicit about wanting another earth moving contract.

For those concerned about the external holdings, then clearly they are trading around their positions, and being honest, are considerably better PMs than the managers that think the equity holdings are a liability. "Over the period Capital continued to rationalize the breadth of holdings and realized cash proceeds from the portfolio generating net sales after investments of US2.6million, with the proceeds directed toward group capital expenditures."

[hpcg] 14/7/2022 11:45

Assays are a daily fact of life and are only at risk if a mine shutters - but then the machine can be moved. Also notable is the small footprint in Canada.

[shanklin] 14/7/2022 11:21

I am 100% certain that helping out companies at a time when financing was difficult has done CAPD no harm in terms of winning ongoing business. Even if they end up flat overall on these investments, its probably done them a world of good in business development terms.

[gilotron] 14/7/2022 10:47

interesting yasX I would say that we are well placed to understand companies and invest at the right time. No-one can escape this current bear market. I may be biased but I still really like CAPD