Capital Share Discussion Threads

[theapiarist] 14/3/2024 13:06

Indeed, Rivaldo. When discussing the investment portfolio, it should be born in mind that the figure of $47.2 million relates to it's valuation at 31st Dec 2023.

Since then the movement of the 3 major components (ca 85%):-

PDI +14%
WIA +70%
AAUC -3%

I don't know the precise size of the holdings in these 3 companies, but would nevertheless hazard a guess that the total portfolio value is now well north of $50 million and rising.

And we shouldn't dismiss the possibility that there is a dark horse lurking amongst the remaining 15%.

[rivaldo] 14/3/2024 12:31

Hopefully the LSE presentation will be available later as I was busy and couldn't listen.

One interesting comment from the presentation reported elsewhere (hope DangerCapital doesn't mind me reposting):

"Predictive likely to be taken over post DFS

PDi currently worth $32m to CAPD so this would be a material event"

[benjonesinvestments] 14/3/2024 10:41

Agree Adam - I'm getting $0 FCF for this year.

Capex is too high with inadequate return - I've never been convinced by the mining services contracts and these results don't ease those concerns at all. They're paying ~10% pa per year on debt and don't seem to be making that on the contracts.

Also have to question why the investment portfolio is being grown given debt costing 10% pa.

Upside is (hopefully) better margins on the labs business as they mature and capacity increases. The labs are low capex so better returns on capital there.

[hpcg] 14/3/2024 08:52

The 5% holding announcement from Premier Milton suggest one institution buys into the future.

[chillpill] 14/3/2024 08:49

Until the Company starts allocating more capital back to shareholders I don’t see the share price re-rating.

[qs99] 14/3/2024 08:47

Thanks Adam and good morning, well done for doing so, let's see what they do in presentation but so far in RNS zippo....

They should start taking some cash off the top of their investments IMO

[darlocst] 14/3/2024 08:43

Hi Adam, I expect it will be discussed further on the call @ 9 - I will take a view after hearing reasoning/detail. My focus is more on how they are executing operationally in drilling, mining services & MSALABS.

I do think its a fair challenge to ask for an outline of the longer term, 3-5 year, plan/investment profile.

[adamb1978] 14/3/2024 08:30

Darlocst - how do you justify investing a further $9m in the investment portfolio in 2023? Thats not capital gains - thats more cash invested in them.

The 3 large key holdings, which seems to be the narrative now, dont need more capital thrown into them

[adamb1978] 14/3/2024 08:27

QS99 - I emailed the company on exactly that point 6-12 months ago and they said that they would look at doing so. I might follow up again to ask the same question. Splitting out sustaining vs growth capex would be helpful as the cashflow looks awful at the moment.

Suggest emailing their IR guy. He does at least respond

[darlocst] 14/3/2024 08:27

Two things you can guarantee on results day - a share price sell off & posts on the investment portfolio/NEDs/capital allocation.

The reasoning on the investment portfolio is copied below & the return generated since launched is substantial & identifying it as a core pillar does not indicate an imminent change in approach.

"Our investment portfolio remained focused on a select key few holdings through the year. Growth in key investments saw our portfolio grow to $47.2 million, a significant return from the net investment to date of ~$17.1 million. In addition, our portfolio has been a key business development tool for the Group, with contracts from investee companies generating over $140 million in revenue since we formally launched our investment strategy in 2019 and remains a core pillar of our business model."

IMV management continue to execute well, are mitigating African risk and have moved into longer term tier 1 contracts over time. The forecast revenue growth is a big positive even after accounting for CEY mining services contract finishing in mid-2024. The only relative negative is the MSALABs revenue growth whilst still strong is less than the forecast Tamesis had in for 2024 but made up with revenue growth elsewhere.

[qs99] 14/3/2024 08:25

Why can't they give clarity on their "fleet" and investment for growth so shareholders can understand what free cash flow over next 3-5 years could accrue to them?

Otherwise Board are just taking home lovely pay while shares stagnate & divi goes nowhere as they keep having to refresh equipment every year it seems?

DYOR

[tiswas] 14/3/2024 08:21

We are about 1/3 off recent highs despite recent small caps rally, never really recovered from those chunky director sales last year, lowly rated and with little apparent institutional interest.

With little cash coming back to shareholders I can only hope that they are setting it up for a trade sale. Cannot see how I am going to realise value otherwise.

[adamb1978] 14/3/2024 08:14

Agreed Phillis - the jam tomorrow analogy is a good one. Not clear to me whether the gazillions these guys splurge on capex generates an adequate return. If the board had proper NEDs, you could take more comfort that investment plans had been properly scrutinised but unfortunately we dont have that here

[tightfist] 14/3/2024 08:14

I agree, actually putting increased capital to work the investments smacks of it having become a JB plaything. Good approach in the early days, but we'll timed-out IMHO. .Shareholders would be better served with 100% focus on the operations - and cash for buybacks. It would also clarify the reporting.

[adamb1978] 14/3/2024 08:10

Flat dividend sends a poor signal, but probably explained by:

"Capital expenditure is expected to be $70-80 million in 2024. This will fund typical sustaining and replacement capex across the drilling and mining fleet to ensure ongoing youth and productivity, newly purchased rigs to drive growth in the USA and the expansion of MSALABS. This year we will also fund non-recurring expenditures primarily a major workshop facility in Nevada as a hub for our operations in the region;"

Based on this guidance, I don't see how they generate positive cashflow this year.

Perhaps they do $105m EBITDA post leases, then deduct interest, tax and say $80m - $85m capex and you're negative.

Makes the question of buybacks irrelevant. Would like to see them monetising the investment portfolio where shares are liquid and using that to fund some of this capex.

Adam

[chillpill] 14/3/2024 08:09

Historically they sell off on results day.

A few traders tend to exit.

[qs99] 14/3/2024 08:08

Agreed the Board are not running this for benefit of shareholders

material growth, yet shares have not moved in 2+ years effectively

c.£180m market cap, net debt LESS investments c.£15m with EBITDA of say £70m and next year forecast north of c.£80m

EV/EBITDA of less than 3, says it all about what market think.....

Also, like tool hire companies, if they keep investing major chunk of free cash flow on equipment, how are shareholders ever going to get growing returns or a decent rating?

DYOR

[phillis] 14/3/2024 08:05

A bit jam tomorrow

[adamb1978] 14/3/2024 08:00

Revenue guidance is decent and 2023 gross margins held up well, despite the increasing services content

[adamb1978] 14/3/2024 07:57

Yes, operationally I agree - the company has been well run and the move to do more in the US and with tier 1s is a recent example - reduces the emerging market risk premium and makes earnings less susceptible to a range of factors. Its the governance and capital allocation decisions (somewhat inter-related) which is the big failing here. Impossible to prove, but I think the share price would be substantially higher if those were resolved

[chillpill] 14/3/2024 07:53

Thanks Adam.

JB probably moans to brokers and investors his shares are undervalued but maybe he is part of the problem?

I say that in the same breath that he has managed the operations extremely well.

[adamb1978] 14/3/2024 07:46

Chillpill

Agreed. My main complaint about CAPD has long been the governance. The NEDs are puppets and the 'Chair' JB runs it as his own play thing.

Investing in other company shares is an example of this. The drilling-for-equity thing was a historic strategy for them but now that they're working with tier 1 companies, that shold largely be in the past. They in fact invested $9.3m in other company shares (not drilling for equity, but cash investments) last year. There's zero evidence that the market gives them value for the investment portfolio so I agree with you that it would be better for them to not just stop that but also buy back their own shares.

Unfortunately the buyback has been raised several times with JB on investor calls and he bats it back.

Adam

[rivaldo] 14/3/2024 07:34

Results are out - and are significantly ahead of consensus in all respects (except revenues as these have already been disclosed).

PAT is a substantial 9% ahead of consensus.

The core 17.5c historic EPS puts CAPD on far too low a rating, especially given the $47.5m investment portfolio which offsets 2/3 of the debt.

2024 guidance for revenues is a very decent 15% up at the midpoint - this despite Sukari mining services ending halfway through the year.

The tone of the outlook is extremely positive about "maintaining the growth momentum".

MSALabs is forecast to bring in $55m revenues this year at the midpoint - 43% up on last year.

And there's news of a new contract win "from Allied Gold Corporation for a grade control drilling services contract across its Cote d'Ivoire complex".

[chillpill] 14/3/2024 07:34

Anyone else find it slightly annoying they invested an additional $4.6m into other shares during the year rather than buying their own shares back.

All that signals to me is there are better shares to buy out there than those of CAPD.


Let’s wait and see if Rudd and JB now sell shares as they did last year.


It all begs the question whether independent directors are being strong enough?

Long term holder but feel JB is not quite reading the room.

[adamb1978] 13/3/2024 08:52

My interpretation of that is that there's a range of estimates out there by analysts and they didnt want someone picking the high estimate and saying that they've missed.

This way, they'll message that they [at least] met consensus