Capital Share Discussion Threads

[rivaldo] 17/3/2017 09:17

Good summary here, with analyst comment as follows:

http ://www.proactiveinvestors.co.uk/companies/news/174925/capital-drilling-caps-a-year-of-progress-with-a-savvy-investment-174925.html?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=7163-363489-Proactivity+-+16%2F03%2F2017

"Bang on forecast

House broker finnCap said the results were in line with the recent trading update.

“Market conditions continue to improve, with a strong improvement in exploration activity,” the broker said, as it left its recently updated current year estimates unchanged.

Capital Drilling recapped a number of exploration contracts it had won during the year, the benefits of which are expected to feed through this year.

“After a strong run, the shares have recently seen some profit taking and now offer an excellent buying opportunity,” the broker said."

[greenroom78] 16/3/2017 16:13

Nice long wick on that candle on the chart. Reversal from here hopefully.

[deanowls] 16/3/2017 16:02

They flagged up that the divi would be under review a while ago as they saw costs for start ups increasing. I expect it to resume an upward trend over the next year.

[twistednik] 16/3/2017 14:14

It's a tough business to evaluate.

EBITDA and revenue growth are heading in the right direction as you would expect with improved utilisation rates as we come out of the down-cycle.

The important bit is trying to assess how the EBITDA converts to cash (and what this will look like over the next 3 yrs). Clearly not very well in the current year as they are investing in new rigs and A2 (not sure the strategic rationale for this 50% acquisition except for having the same customer base).

How much cash is required to maintain the current fleet (at an average age of less than 5 yrs) vs growth capex and investment to grow profit in future years? This isn't easy to unpick from their presentation on 2016 capex numbers...

If you value this business on an EBITDA minus depreciation (as a proxy for maintenance capex) basis, it isn't generating much cash! The hope is that assets are depreciated on the BS at a faster rate, and will continue to generate further cash over their true useful life.

Further, as demand picks up and rig utilisation increases, this additional profit falls to the bottom line and should improve the Return on Capital from its current low base.

[greenroom78] 16/3/2017 09:50

Thanks all, I agree after a period of heavy investment it doesn't make sense to pay a huge dividend and put the balance sheet at risk. At least they retained some of the dividend and now see a period of growth for shareholders which should see a boost to FCF and then the dividend can return.

[darlocst] 16/3/2017 09:39

I listened in to the conference call. They sound very pleased about the return to revenue growth, which really picked up in H2 & were making positive noises about current financial year.

CAPD have retained their revenue guidance of $105-$112m for current year at the moment but said year had got off to a good start & will update in Q1 t/s.

Certainly sounded to me that once they have a bit more visibility that revenue numbers for year will move upwards.

Re dividend, the chairman described H2 as the perfect storm re capital investment, with margins at cycle low point combined with spending on rig refurbishment. Management want to retain a strong balance sheet with net cash.

shaunstar - your Q was the last one. Chairman said that could see increase in prod contracts in H2, to follow on from miners increasing budgets this year.

[shaunstar] 16/3/2017 09:38

I joined the results call, 17 people on the line and at leeast a couple of questions compared to only one question (mine) last time inc one from Shore Capital.

Unfortunately the call dropped for me at the start, i rejoined then dropped again at the end - just after i asked my question... so if anyone knows the answer to "whats the outlook for production contracts this year" please let me know :-)

Otherwise call was typically to the point, things going well and we're doing our job etc.

Couple of points i noted:
-CAPD seeing exploration budgets increase since last year in miners
-"Market conditions continue to be very buoyant" They will update again in first qtr trading statement including on any change to their $105 to $112 revenue guidance for 17/18
-Contract costs may start to rise in second half if demand continues
-Margins low because at this point in cycle theyre investing for future demand as part of the recovering conditions
-lab business has good margins

Did anyone else ask/hear any questions at the end of the call?

Shaun

[gleach23] 16/3/2017 09:27

Thanks rivaldo.

Having gone a bit heavy on these recently, am feeling becalmed by the share price action this morning after a mini flap on reading RNSs amid school run etc.

I also didn't see the dividend cut coming although now realise they only introduced their maiden dividend in 2015 at a time when capex was cut back and operational cashflow was impressively strong during the downturn, so perhaps the cutback isn't such a surprise and sounds like it was flagged by brokers which I didn't know (thanks WJCC.

That just leaves the potentially exciting 'strategic investment' as an unknown quantity for now but good to have the Fincapp retention of the 95p TP.

[rivaldo] 16/3/2017 09:01

Finncap have retained their 95p target price and say the results were in line with expectations. They forecast $20.1m EBITDA this year!

They conclude:

"Valuation.

After a strong run, the shares have recently seen some profit taking
and now offer an excellent buying opportunity. We recently increased our
forecasts with the exploration market starting to see a recovery. The shares are
currently trading on an EV/EBITDA of 3.6x in 2018 and a P/E of 13.5x. Our
unchanged 95p PT is based on an EV/EBITDA of 6.4x in 2018, which indicates
considerable upside. With market activity improving and as new contracts are
expected to have a strong drop through to profitability, we consider forecast the
risk to be on the upside reinforcing our enthusiastic stance."

[lord gnome] 16/3/2017 08:47

The dividend cut certainly wasn't obvious to me. I didn't see that one coming. Very disappointed as I bought these primarily for the yield (plus the very good prospect of share price recovery). I have now lost 60% of my income and what was a very decent paper profit has been whittled away to break-even. Not happy this morning. I will continue to hold in anticipation of a half decent share price performance over the next 12 months.

[rivaldo] 16/3/2017 08:29

The outlook looks excellent, but the short-term reaction has been muddied by the non earnings-enhancing new investment and the further investment into new rigs - which is necessary for all the new work, but means the cash position has fallen.

Hopefully the market will look at the growth and see what's going on behind the headline numbers. This is one of my smaller investments, but I might buy some more, especially if the gold price is stable and/or continues to rise as it is currently.

[greenroom78] 16/3/2017 08:06

Bit of a disappointing market reaction, I can't see anything new in there. We knew there was going to be significant investment announced and it was fairly obvious the dividend would be cut to do this. For me the acquisition looks an interesting addition.

[gleach23] 16/3/2017 08:04

Thanks rhomboid - yes of course it was - apologies :)

[wjccghcc] 16/3/2017 07:45

Dividend cut to fund increased demand was also forecast by the brokers, though it looks like they brought it forward a year.

[rhomboid] 16/3/2017 07:34

CEO leaving is old news, previously RNSd , 14 new rig contracts v 9 at the prelims stage so a year of major growth crimping cashflow but setting stage for long term accelerated growth imho

[gleach23] 16/3/2017 07:30

Looks like in line results and a strong outlook but some of the weakness explained today -

- resignation of CEO
- final dividend cut by 60% to fund capex plans
- proposed $3.8m investment in A2 which will not be earnings enhancing in 2017

Hmmm

[gleach23] 15/3/2017 12:20

Surprised at the weakness here leading right into results tomorrow...must be a keen seller about.

Have been nibbling into the weakness with the 50p support in mind and hoping the uptrend hasn't been broken.

[gleach23] 07/3/2017 15:12

Just topped up with 5k shares. Online quote to buy was 53.9 and to sell was 54p so a strange anomaly which the market occasionally throws up.

Note the online quote to sell any more than 5k drops to 53.15p as we have seen go through today already.

Edit - meant to add that these are now nearly 20% off late Jan lows and with great chart support at 50p it looks like ideal topping up territory imo

[gleach23] 06/3/2017 13:34

Back to where we were a couple of weeks ago and Offer firming a little again.

Finals due a week on Thurs (16th) - it'll be interesting to read what they say about the final divi given the 36% increase of the interim divi and the strong cash generation.

[gleach23] 23/2/2017 16:13

cheers rivaldo - well spotted

[rivaldo] 23/2/2017 15:59

News - looks like a new contract in Egypt for CAPD (near Centamin's mine):



"Aton Announces That Drilling is Underway to Increase Resources and to Test New Exploration Targets

VANCOUVER, BRITISH COLUMBIA–(Marketwired – Feb. 21, 2017) – Aton Resources Inc. (TSX VENTURE:AAN) (“Aton” or the “Company”) is pleased to announce that a diamond drill program is underway at the Company’s Hamama deposit (“Hamama”). The drill program will look to increase sulphide resources at Hamama West, one of three contiguous zones at Hamama, and will also test a new exploration target, the Western Carbonate Zone. Hamama is situated within Aton’s Abu Marawat concession (“Abu Marawat” or the “Concession”), located in the Eastern Desert of Egypt.

Highlights:
•The Company has contracted Capital Drilling Limited to drill approximately 2,300 metres in 14 holes at Hamama West and the Western Carbonate Zone (see Figure 1 for the proposed drill hole location plan).
•Aton plans to drill approximately 1,500 metres in nine holes at Hamama West, which hosts an Inferred Mineral Resource of 341,000 ounces gold equivalent (“AuEq”) and an Indicated Mineral Resource of 137,000 ounces AuEq (see news release dated January 24, 2017).
•The Company plans to drill approximately 800 metres in five holes at the Western Carbonate Zone, a new target area located approximately 400 metres west-southwest from the western edge of Hamama West.

etc"

[gleach23] 22/2/2017 19:07

Nice day today, demonstrating how illiquid these are.

With full year results 3 weeks tomorrow one would hope that recent highs will be tested before then, if not exceeded.

[greenroom78] 21/2/2017 17:27

I bought for the first time (in this cycle, held briefly in 2014) this morning, been watching for a while but never seemed to time a dip with having funds.

In at 54p, and today's dip has hit the bottom line of the trend channel, bounced on the 100 day moving average which has been support a few times before and it has also backtested the last breakout point (of 54p). There is a gap to 52p which might get filled (hopefully not) and RSI is very oversold and the past 3 times the RSI has been this low it has rallied nicely afterwards.

I'm using charts more and more of late and hopefully I've time this one right, I have bought for the fundamentals though as I thought the most recent statement was very bullish, especially when you look at the sharp rise in revenue forecasts for the coming year, which suggests to me their recent investment into the business will start to bear fruit.

[gleach23] 21/2/2017 11:49

Held back for a while this morning as sells came in but the the Offer is now firming so just made a top up. Will top up again if goes nearer 50p.

Edit - as you suggest though LG it does look like we have to wait for a seller to clear

[lord gnome] 14/2/2017 15:09

I would guess that we have a seller in the background feeding stock to the market, otherwise selling this light should not have had such an effect on the share price. As you say though, gleach, it has bought out the bargain hunters.