Capital Share Discussion Threads

[adamb1978] 23/8/2022 11:37

I'm not sure that increasing the dividend further will bring in many new investors. The yield is 3%-4% odd - a number of people who look for materially higher than that, say 6%-7%, are probably more risk averse and unlikely to be interested in a company operating in CAPD's core geos.

3%-4% yield, plus similar buyback makes sense to me...and if there was even more capital available which isnt needed for growth, use it for special divis

[otemple3] 23/8/2022 11:29

I like their approach so disagree. I am hoping to be able to add to my position if it gets to 90p soon. Cash is building nicely, rotating into more robust contracts; clearly excellent capital allocators

[yasx] 23/8/2022 11:15

Re Berenberg/Tam

Those targets are meaningless - there is no interest at a fraction of those prices.
They need to increase the dividend to attract more investors since repetition of the same story of great visibility, record order book etc is not helping affairs. Separately they ought to dump more of the investments and bolster the cash position.

[dangersimpson2] 23/8/2022 08:49

They are almost certainly paying the dividend they feel will be sustainable through any cyclical downturn. Look at what happened in the last big downturn: they generated a lot of cash which they used to pay down debt and pay a dividend. They are likely to go into the next downturn (whenever it arrives) with less gearing, a greater number of long-term contracts, and a still rapidly growly labs business. With fewer growth opportunities, that cash will be increasingly directed towards dividends and buybacks. And should put a floor on any share price drop.

[otemple3] 22/8/2022 21:56

Great to see the upgrade and am looking forward to Wednesday's presentation having missed last weeksLots to like here and been a good steady performer for me and feel lots more to come if MSLABS can get close to their growth targets. Given mgmt are generally prudent, I am confident they will Looking forward to seeing how they look to unlock some of the hidden value here over the coming years

[yasx] 22/8/2022 21:16

"The share price reaction to this small upgrade was minimal, perhaps because shareholders have got used to this company not moving even on excellent results"

When I raised this issue several weeks ago, the view form some on here was that this share had been performing admirably for such a long period of time and to suggest otherwise was plainly absurd. Oh well....

"But there is also good awareness that these boom times will not be forever"

Quite - and the shares have hardly performed in a manner consistent with a share bang in the middle of a boom upswing. If and when (and cyclicality dictates that it will at some point) the outlook turns, well, one can hardly begin to consider what the reaction might be given how this has failed to respond during the boom cycle.

[rivaldo] 22/8/2022 09:43

I posted Berenberg's upgrade in post 2355 ds2 - but great to see it again :o))

Mark Simpson (ds2?) and LeoInvestorUK have posted their latest weekly small caps review, including this summary of CAPD's interims (hope you don't mind me posting it here):



"Capital Limited (CAPD.L) - Interim Results

EBITDA came in at $41.4m looks good considering Q1 was relatively weak. EBITDA margins of 30%, top of the guidance range. This shows they are managing any inflationary cost increases really well. Mainly because most of their contracts adjust for inflation. They also provide a small upgrade to revenue guidance:

Full year revenue guidance increased to $280 - $290 million (from $270 - 280 million);

The outlook is very positive, as followers of the company already know:

The underlying demand in the market continues to be encouraging, as is evident from the high utilisation rates the Group delivered in the first half. While there will be some seasonal slowdown through the third quarter, the tender pipeline remains buoyant across drilling, mining and laboratories and as a result of this strong demand, we are raising our revenue guidance for 2022 to $280-290 million.

But there is also good awareness that these boom times will not be forever:

In drilling we have taken advantage of the strength we have seen in underlying demand to focus on contract selection and rotate our portfolio. Through the period we have commenced operations at two more of Africa's largest gold mines, Kibali and Fekola, that are well positioned to operate consistently throughout the cycle.

Given this, Capital really should be on a premium rating to the sector. Yet their presentation shows that they remain at a material discount:

The capex guidance has increased:

We have also lifted our capex guidance to $50-55 million, which includes higher sustaining capex on the expanded fleet, and additional rigs to replace expedited rig replacements. In the strong demand environment we are currently experiencing, we have decided to further replenish our fleet to ensure both high reliability as well as a peer leading safety performance which remains core to our operations.

Some may not like this, although we view this as a fairly positive sign given that Capital are excellent capital allocators. Perhaps the only thing to criticise in these results is the lack of further buybacks announced. The overall returns to shareholders from a growth company at 3.7% dividend yield and 90bs of historical buybacks this year are not too bad. However, with the company trading at a forward EV/EBITDA of 2.5, then buying back shares is like winning new business at 40% EBITDA margins. Something they may struggle to do, even in these boom times.

The share price reaction to this small upgrade was minimal, perhaps because shareholders have got used to this company not moving even on excellent results. This does, however, mean that a significant valuation anomaly remains."

[dangersimpson2] 20/8/2022 09:13

7th upgrade in TP this year from Berenberg to 173p: [...]

Clearly Berenberg are not interested in the usual broker game of increasing TP only when the share price gets close to it. Continuous upgrades despite a flat share price suggests real conviction in their view that the company is very materially undervalued at 96p.

Link that works with advfn:

[adamb1978] 19/8/2022 09:03

Yes, valid point on risk adjustments. Further supports the argument for monetising the investments quicker

[johnrxx99] 19/8/2022 08:54

S, very much agreed.

[shanklin] 19/8/2022 08:25

Hi john

Fair comment re risk and investing based on RAROC.

Its the forecasts rather than the valuation (what one does with the forecasts) I was questioning.

As CAPD moves to servicing predominantly bigger players, hopefully that will help with the valuation and the share price

[johnrxx99] 19/8/2022 08:15

Shanklin, I'm sure you know IRR methods use by the City. Risk variables play a large part in assessing the value of assets and income. When you have a large part of the assets as risky, they mark down the value, sometimes considerably.

Having spent most of my life valuing assets, my own calculations tend to
follow the same methods, that is why I don't place much value on the so called investments.

I invest here because I see a good future to the service side and an even greater future to the Labs side. Until the company grows away from it's formative approach, it may linger price-wise. IMO

[johnrxx99] 19/8/2022 08:06

Well at least it was not negative finish yesterday.

[rivaldo] 19/8/2022 06:35

Good to see the share price tick up a little towards the close after some large trades totalling around 825,000 shares were reported - hopefully an overhang has been cleared.

[shanklin] 18/8/2022 16:40

"If anything these forecasts are conservative"

Given the growth in MSALABS, "ludicrous" might be a better description

[davebowler] 18/8/2022 15:05

TAmesis-

Strong Growth with Increase in Guidance Capital Limited (LSE: CAPD) released H1 2022 results this morning and have presented on them subsequently. Overall, it was another good set of results with strong growth in the three underlying parts of the business; drilling, mining services and laboratory operations. Revenue had already been announced. EBITDA, EBIT and underlying NPAT were all up by 46%, 39%, and 57% respectively. Operating cashflow rose 6.5x and the 8% increase in dividend leaves the company trading on a likely 4.5% dividend yield for the year when including the $2.5m buyback executed in H1. We remain very comfortable with our 160p Price Target.

Investment Case
As has been the case for nearly every announcement in the last three years these results are strong and point to further strength and growth. With activity in the mining sector still strong and long-term contracts locked in, we see safety in the medium term revenues and margins. Meanwhile the shares are trading on EV/EBITDA multiples of 2.5x and 2.3x 2022 and 2023 respectively, PE ratios of 8.0x and 4.5x and a dividend yield of 3.4%. This implies next to no growth in the business, yet our forecasts show a 8% CAGR in EBITDA from 2022 to 2024 and a 46% CAGR in free cashflow taking net debt from $19.6m at the end of 2022 to a net cash position of $48.3m by December 2024. We believe that, if anything, these forecasts are conservative.

[adamb1978] 18/8/2022 15:04

Thanks Shanklin

Tamesis target price now 160p. Their comps show CAPD at 2.5x and 2.3x 2022/3 EBITDA vs comps at 4.5x and 3.9x

[shanklin] 18/8/2022 13:28

Adam

Looks like this morning's video presentation is still available to view

[rivaldo] 18/8/2022 11:41

Berenberg have again raised their target price, to 173p (from 169p), and say Buy:

[adamb1978] 18/8/2022 09:25

Will be interesting to join the InvestorMeetCo presentation when it happens as I couldnt make this morning.

On the use of cash conversation, personally I think they need to keep leverage low given that the share price will inevitably otherwise get whacked when the environment is less positive for them. I'm not planning to hold CAPD forever but being nimble enough to exit before that time can be tough.

I think they've mentioned 1x EBITDA as the cap for where they'd go with leverage. The question is what EBITDA is used in that - I think its fine if its something of a cross-cycle EBITDA given that 1x EBITDA today will be a lot more times EBITDA if the top-line contracts and then operating leverage hits EBITDA.

With that limitation, I think a 3%-4% yield is fine given it brings in another group of investors (cost of say £6m p.a.?) and then supplementing that with a small/moderate buy-back programme (perhaps another similar amount to the divi) whilst they're trading around NAV and to support the share price makes sense. Then invest the remainder...which still is a decent chunk of capital to put to work

[rivaldo] 18/8/2022 09:03

Very confident presentation just now. CAPD will be touring and presenting to the City over the next 4/5 days and then there'll be an Investor Meet, so hopefully drumming up additional interest here given the good story to tell.

A few points I noted:

- currently the strongest rig utilisation since IPO
- operating in 5 of the top 6 producing gold mines in Africa where they operate (don't operate in Burkina Faso or Ghana)
- the $47.3m investment portfolio has a cost of just £11m
- the ex-div date for the 1.3c divi is 1st September
- there's an improving rate environment for mining services contracts, and CAPD are able to pick and choose which ones they tender for
- all majpr contracts have rise and fall mechanisms to account for rising costs, and the rest allow for negotiation. Cost pressures have been successfully mitigated, and CAPD are around the top of their 25%-30% margin range
- MSALABS margins are "broadly in line with Group margins across the board", so maybe these will rise further as the business scales up?

Cheers tightfist, appreciated! I should have been clearer - I meant that "some" might wish to see an increasing cash pile to enable larger buybacks, higher dividends etc rather than further reinvestment in the business. Personally I'm with you in looking to see the business grow in the most efficient manner.

[nfs] 18/8/2022 08:37

MaliCognisant of increased security risks . Higher costs embedded as a consequence. They have managed their way through it to date and that's why they get hired in such a country

[tightfist] 18/8/2022 08:24

Hi Rivaldo, I have appreciated a lot of your well-researched posts over the years. However, I am curious about your latest cash pile comment. (Unless you are anticipating a large earnings-accretive acquisition) why would CAPD build a cash pile rather than re-cycle it at the existing ROC of 19%, which Chyrsos will hopefully build upon? .Would appreciate your thoughts, tightfist

[rivaldo] 18/8/2022 07:36

Inching up now, with buying coming in at 97.74p and 97.4p.

The revenue upgrade is new news, combined with the continued optimism going forward. The H1 investment portfolio loss is old news which we've known about for some time - in fact the portfolio at $47.3m is still way above the $31m it was worth a year ago - so shouldn't be a factor.

If there's a negative, it's a small one imo re the huge operational cash inflows of $34.9m being utilised in increased cap ex rather than building up the cash pile. But this is a result of the company's fast growth and high rig utilisation which should lead to further expansion in the future.

[shanklin] 18/8/2022 07:22

I have left a question for today's 9.00 a.m. presentation re the perceived risk to their operations from the unstable security situationin Mali. Not sure I will be able to view any/all of it and they haven't yet mentioned a replay facility. So if they do answer this, I would be grateful if somebody would post a brief summary here. TIA.

I have also asked about the MSALABS operating margin