Capital Share Discussion Threads

[rivaldo] 19/6/2023 09:58

I understand that the writer of the Buy tip above has a 150p target.

[rivaldo] 16/6/2023 07:15

As an aside, Leo Lithium continued to rise last night, up another 10% to new highs of A$1.05. CAPD's holding in this alone is now worth almost £6m.

Anyway, CAPD were tipped as a Buy on Shareprophets at some point yesterday FYI (but subscriber only):



"Capital Limited – new contract and increased bank facility, Buy

By HotStockRockets | Thursday 15 June 2023"

[rivaldo] 14/6/2023 09:08

Expansion news for MSALabs/Chrysos in Ghana:



"MSALABS 3,902 followers
1w •
Our newest laboratory in Obuasi, Ghana is undergoing final preparations for opening, with commissioning of the PhotonAssay unit and training of operators underway. Operations are planned to commence on June 10 and will deliver PhotonAssay services to the Ghanian mining and exploration industries.

PhotonAssay is the groundbreaking technology providing faster, more accurate analysis results and supporting improved definition of reserves and resources and quicker decision making to improve operational efficiencies and profitability.
#MSALABS #PhotonAssay #gold #ghana"

And also gaining accreditation in Canada for PhotonAssay:



"It has been great to see all our friends and colleagues at the Canadian Mining Expo in Timmins, Canada. We have been celebrating our recent PhotonAssay ISO 17025 Testing and Calibration Laboratories accreditation at our Val d’Or laboratory. We are now providing this groundbreaking technology, that delivers faster, more accurate assay results, through our Prince George, Timmins and Val d’Or laboratories across Canada."

[rivaldo] 13/6/2023 11:00

Nice plug on Citywire today, which thankfully hammers home the point that CAPD is becoming a "full services mining house". Perhaps the market is finally cottoning on here:



"Capital’s transition to full services miner, says Berenberg

Mineral drilling solutions group Capital (CAPD) is growing its contracts as it continues its transition into a full services mining house, says Berenberg.

Analyst Richard Hatch retained his ‘buy’ recommendation and increased the target price from 166p to 170p on the stock, which was trading up 7.3%, or 7p, at 103p.

It has won a contract from a subsidiary of tier-one Australian miner Fortescue Metals that builds on its existing three-year diamond drilling contract and ‘is a good example of how Capital can grow its presence on a site and add additional services by starting with its core business – drilling’, said Hatch.

‘When we initiated on Capital in 2020, it was predominantly a driller with ambitions to grow and diversify its business,’ he said. ‘Since that point, it has moved into, and now grown, its contract mining business, and also added additional growth through its [mining analysts] Msalabs business, which offers attractive continuing top-line growth.’

The award of the latest contract shows ‘further growth and diversification for Capital’s revenue streams’, added Hatch."

[hpcg] 13/6/2023 09:06

allstar - they are not in control of the timing for the Allied IPO. They are in control of how they sell it down. They should absolutely not be telling the market what they intend to do, just as none of us here would. IMO people speculating about what others think of portfolio is just finding reasons for observed behaviour and not from the horses mouth. I think there was one fund that did object, or complain it was too complicated so they sold out. The turnover of stock must leave it in the hands of investors who are happy about it. Anyone can do a sum of parts and rank the portfolio at zero if they wish.

In my opinion a lot of investors or potential investors are driven by the price of gold. Overlay a chart of the price of gold in dollars and one can see that rallies to highs in 2022 and at the start of this year follow rallies in gold. Gold is consolidating, CAPD share price is consolidating. I actually think there are investors who think we are a gold miner. This in turn because oil companies are routinely called oil drillers despite them having handed the task of drilling off to service companies decades ago (some oil cos do again own drill rigs, mainly onshore and or in unique environments).

One of the benefits of the Fortescue deal is that it will become apparent that we provide services across metals. If investors did their own due diligence they would see that neither the top nor bottom line of CAPD is correlated with the price of gold.

[rivaldo] 13/6/2023 07:29

Good news - the Allied Gold IPO is going smoothly, and is expected to close on or around July 17th with a $300m fundraise.

CAPD will therefore be able to discuss any upwards revaluation of their shareholding in the 30th June interims, although hopefully there'll be an RNS detailing this around the IPO date. The interims may even include the revaluation in the numbers since the process will be almost complete at that point and will have concluded prior to those numbers being issued:



"Allied Gold Corp Limited, Allied Merger Corporation and Mondavi Ventures Ltd. Announce Submission of Application for TSX Listing and Provide Update on Business Combination and Financing with Closing Date Set for July 17, 2023

etc"

[adamb1978] 12/6/2023 20:17

In theory the value of the investment PF should decrease as a proportion of market cap given that they're working with larger clients so taking an equity position will be immaterial. Its a strategy which has served them ok/well, but hopefully more in the past and some will get taken out or merge with others. Even 50% of the investment portfolio as cash I think would be better for the share price than 100% of the positions

[deanowls] 12/6/2023 19:13

Oooh I remember when the board were fixated we couldn’t break 65p and the same arguments were being made then.

Some stakes have/do get sold down and I’m sure this will continue, they are worth more collectively than what we got them for and utilized rigs.

They’ve done alright by me so far so I’m minded to trust them.

[tiswas] 12/6/2023 18:39

Yes, not always good to have an investment banker at the top. Risk that they try to be a little bit too clever and innovative.

[phillis] 12/6/2023 18:32

Dumping stakes in minnows is not v easy

[allstar_07] 12/6/2023 18:05

Firstly, im a holder and have been for some time.I listened to the AGM and the comments around the 'strategic investments' and buy backs etc.From what i can tell and heard in interviews etc it seems that funds do not like the investment portfolio. Debt was $47mill at the full year and I think nearly $10m of debt service charges (margin is high).The group revs from companies where we hold a position was only 17.5% at the FY - so not sure really that strategic and unmanageable if liquidated.Cant help but think, like a lot of people, if they sold the investments to pay down debt/service new contracts (i think that would be better than buy-backs/special divi) we would be at a much higher SP! I know the timing hasnt worked, but if they could have said today the allied investment is being liquidated to fund the new contract capex it would have been much better received (versus increasing debt). Just my thoughts, but perhaps ive missed something? I mean the new contract is good news of course.Also saw the tweet about the new chrysos lab opening in Ghana - was this one mentioned before?

[rivaldo] 12/6/2023 14:23

Berenberg have today raised their target price to 170p:



And Stifel have also raised their target price to 180p:

[tiswas] 12/6/2023 13:07

Adam

Fair points.

None of the directors look particularly old or coming up to retirement and whilst I am sure they are on decent salaries it is not as if they are receiving large dividends. What are they working towards?

So, where are we in the cycle? Companies tend to acquire at the top! 🤣

[adamb1978] 12/6/2023 10:54

Its not the most obvious sector for private equity Tiswas. They wouldnt be able to borrow much against CAPD given (rightly or wrongly) the view of cyclicality of the business and without debt, price would need to be low to generate the returns.

So would it needs to be a corporate acquiror. I'm not sure management would be desperate to sell though

[tiswas] 12/6/2023 10:49

If we are cheap, and I have been holding for a few years now, is there an obvious trade buyer of the company out there or even VC?

The share price does not seem to reflect the progress the company has made and wondered if the directors are likely to be open to a bid at a decent premium?

[adamb1978] 12/6/2023 09:47

Hi Rivaldo

Was just going through that note too. Highly conservative figures from Tamesis I think so plenty of scope for CAPD to outperform

Adam

[chillpill] 12/6/2023 09:37

Looks like a very good multi-year cash generator.

[rivaldo] 12/6/2023 09:25

Good to see the share price break upwards over 100p and at new recent highs.

Tamesis have retained their 160p share price target.

They've added $7.5m additional revenues into their forecasts this year, which are now just in the upper range of $320m-$340m revenue guidance at $331m, so still relatively conservative.

They forecast 20.3c EPS this year, i.e 16.2p EPS.

They also see 39.4c operating cash flow per share this year.

They note:

"World Class Project and Operator. The Ivindo Project is one of the world’s largest undeveloped high grade hematite projects. FMG has an 80% interest in the Ivindo Iron JV and has been assessing the project since 2018. FMG note that the geology and iron ore potential is similar in scale as Simandou in its early stages of exploration, with its multi-billion tonne potential and high grades. This is great news for Capital who have effectively been asked by FMG to sort out the drilling, earth moving and crushing. This puts Capital in a key operational position which, in our view, will only become more valuable if Ivindo gets even bigger".

They summarise:

"Financial impact in 2024 and beyond. Our forecasts for 2024 do change clearly. Capital note in their press release that revenues of approximately $30m pa will be generated from the mining service contract once it is fully operational. We estimate at full run rate this could add c. $13.5m pa in gross profits – a material addition over five years given the relatively light $15m of capex required. We model revenues from the new contract starting in H2, ramping up in 2024 and being at full operational capacity in 2025."

The Investment Case

Today’s announcement is another demonstration of the ability for management to secure major contracts and a further diversification of the Company’s revenue stream being a mining services contract on an iron-ore project. At the current price the shares are trading on EV/EBITDA multiples of 2.5x and 2.6x 2023 and 2024, PE ratios of 5.7x and 6.9x. This continues to implies little growth in the business yet these sort of contract wins plus the trajectory of MSALABS with Chrysos (c. $80m+ of revenue by 2025 vs just $3m in 2019) show that the reality of the investment case is completely the opposite. We maintain our price target of 160p."

[hpcg] 12/6/2023 08:23

Adam - I merely note that on the Q&A bit of the presentation Jamie pushed back on the notion of returning Allied money to shareholders was that they had more profitable uses for it within the company. I don't disagree with what you wrote, and I am very much in favour of properly controlled buy backs, but I'm also happy that the money is used internally.

[adamb1978] 12/6/2023 08:14

Hi Hpcg

I dont see that this would be linked to the Allied Gold proceeds, particularly given the extended RCF. Funding contract wins like this also shouldn't be mutually exclusive to buying back shares either (particularly when price is at or below NAV)...and the RCF funds this extra capex and profits from the contract probably repay that extra RCF relatively quicky. Its only a £200m market cap company after all too, so finding say £2m for a buyback should be feasible.

Positive news this morning anyway and price reacting favourably.

Adam

[darlocst] 12/6/2023 08:07

Excellent contract win and very positive that its being done without an associated capital raise to fund it, as management said would be the case at post results presentation.

[hpcg] 12/6/2023 07:39

The good thing is this is a suitable use of capital for Allied gold funds. Presumably this is what they had in mind when resisting your question about buy backs.

[adamb1978] 12/6/2023 07:15

Nice size contract win! Let's see whether it wakes the share price up

[rivaldo] 12/6/2023 07:14

Excellent - a second large mining services contract win, this time for $30m per annum for 5 years:



Ivindo/Fortescue Metals must have been impressed with progress on the diamond drilling contract announced earlier this year.

This bodes well as Fortescue are the fourth biggest producer of iron ore in the world.

CAPD are just absurdly undervalued imho.