Capital Share Discussion Threads

[rivaldo] 04/9/2020 10:01

Mark Watson-Mitchell at Master Investor updated last night on CAPD as follows, with a 100p target:

"Capital (LON:CAPD) – going from strength to strength

This Africa-focussed mining services group enjoyed a cracking first half year to end-June.

Its revenues were up 18.8% from $54.8m to $65.1m, while its net after tax profits were a stonking 168% higher at $13.6m ($5.1m), boosting basic earnings 170.5% from 3.7c to 10c. Its dividend was only raised from 0.7c to 0.9c per share.

This was a strong performance from the group, with drilling rig utilisation increasing. But then so too has the price of gold in the first half year, which is a driver for some 90% of its business.

Tamesis Partners are looking for current-year revenues of $138.3m, giving a pre-tax profit almost doubled from $14.6m to $28.3m. They have put out an increased price objective of 102p for the group’s shares.

Even brokers Peel Hunt have increased their price objective to 86p.

Executive Chairman Jamie Boyton stated that, “the mining business is seeing increased tendering activity, providing further optimism of higher activity levels in the second half and into 2021.”

I continue to have high regard for this company’s prospects, its value and its share price and retain my latest target price of 100p. The shares closed last night at 76.5p."

[rivaldo] 02/9/2020 13:54

Yep, another £300,000 or so of cash in the kitty:



Good to see CAPD top-slicing and realising excellent profits. Perhaps just a question of safety-first and topping up the cash pile. Unless as you say mfhmfh there are other opportunities presenting themselves - perhaps even an acquisition rather than an other gold share investment?

[mfhmfh] 02/9/2020 11:53

CAPD has reduced it's stake in Cora Gold (CORA) from 3.93% to 2.78%.

Perhaps to re-invest elsewhere?

[qs99] 02/9/2020 09:36

xd tomorrow?

[dangersimpson2] 02/9/2020 09:21

It doesn't really work like that - it is the earnings plus capital structure that determine the ROE not the other way round. In the last gold price boom they had net debt plus high utilisation which made the ROE much higher. This time they have no debt which will make ROE lower but also means the company much lower risk. If the utilisation gets anywhere near the last peak then ROE will be much higher as at the moment they have a significant amount of unused assets that will generate earnings.

ROE in itself isn't worth anything though, it is the net present value of cash flows to shareholders that gives value to a company. What a high ROE indicates is that a company may be able to reinvest capital at high rates to generate future growth in cashflow which may be due to a sustainable competitive advantage. None of this is certain though, and what really matters in this is Cash Return on INCREMENTAL Invested Capital. But since this is impossible to calculate people often use ROE or ROCE as an approximation.

ROCE is effectively made up of operating margin and asset turnover though which means that margins matter in an industry where asset turnover is hard to control. CAPD manage to maintain a GM of around 40% for the last few years which, while not software company margins, is higher than the last boom and significantly higher than the trough, which suggests that they are genuinely doing something that others find hard to emulate and have strengthened that competitive advantage in the last few years. This bodes well for the incremental capital they are deploying at the moment.

[skatersav] 02/9/2020 08:26

I think the way to look at this is ROE. If you go back to the IPO, they had been booking high double digit ROE. Very high. Last year, CAPD was only generating ~10% ROE. On this basis, a return to 2008 levels of drilling demand could see earnings increase by a multiple, on the existing asset base. I posted this before, but I’m hoping someone has a counter point to this, or better yet agrees with it...

[dangersimpson2] 01/9/2020 12:28

Graphex Mining has been renamed Marvel Gold and the ASX ticker has changed to MVL.

Roland Head's article shows how relying purely on brokers' figures can lead you astray and sensible investors use them to check their own models and assumptions. In this case I think Tamesis are a little light on 2021 with 100 rigs, 65% utilisation and 175k ARPOR given the discussion in the last CAPD results conference call. Although Tamesis appear to have c$31m of mining services revenue in there as well which maybe looks a little high on that front?

Even based on Tamesis figures, a 24% forecast rise in EBITDA makes the growth rate look very reasonable for the current P/E even if PAT figures are jumping around due to assumptions on investment returns etc.

I think it is interesting that Tamesis seem to be happy to stick with a 5xEV/EBITDA price target on the forward year and just keep shifting it forward. So once we get 2020A figures we are likely to see a price target upgrade as they start to use the 2021E figures for the PT.

All in all, plenty of chance of positive newsflow, brokers' upgrades and a positive re-rating to come over the next year or so that doesn't appear in the current brokers' estimates or share price.

[gleach23] 01/9/2020 11:40

Thanks rivaldo - fingers crossed.

Well some volume going through at least - 267k @ 79p and 500k @ 77p. Still over 325k shares available on Offer though. Well bid @ 77.66p for decent quantity.

[rivaldo] 01/9/2020 08:38

Mali Lithium have surged to AUD0.19, at near 2-year highs, after this news which takes them into the ranks of gold producers via acquiring the Morila mine from Barrick and AngloGold, and which has the potential to grow:



I can't see that CAPD have previously been providing rigs to Morila. Since CAPD are such a substantial investor in Mali Lithium, and have other rigs with them elsewhere, they must be in a good position to gain business at this mine.

[celeritas] 25/8/2020 16:30

Resolute Mining Ltd
Operational Update

RNS Number : 0698X
Resolute Mining Limited
25 August 2020


Resolute Mining Limited (Resolute or the Company) (ASX/LSE: RSG) continues to monitor the political situation in Mali and notes that Bamako International Airport has reopened and that the Company's supply lines to the Syama Gold Mine (Syama), located in the south of Mali on the border with Côte d'Ivoire, are open and secure.

Resolute confirms the Company's operations at Syama are continuing as normal with no impact to production or to the safety and security of employees and contractors.

[hpcg] 25/8/2020 15:36

I am also a stockopedia subscriber. The pertinent section is:

"Capital reported half-year earnings of 10 cents per share. However, despite a confident operating outlook for the second half of the year, analysts’ consensus forecasts are for full-year earnings per share of 10 cents. Forecasts for 2021 are also notably flat."

In other words the broker is behind because H1 exceeded their estimates!

He does make some valid points that the paper gains in the exploration companies could be transient if gold breaks down severely, but 1850 is only a 5% loss from 1950, or basically trading noise. There is substantial support at that level, but even retesting the start of the move, somewhere in the high 1600s would not be a surprise. That level itself is materially ahead of a year ago and supports a lot of development.

It is always nice to read a seller's rationale and compare that with other evidence.

[gleach23] 25/8/2020 14:51

Hi hpcg - he does admit to not knowing how to call the outlook amid flat looking broker forecasts, which echoes exactly what you are saying.

[rivaldo] 25/8/2020 14:42

I suspect Roland Head has been misled by his systems, as hcpg suggests above (though I'm not a Stockopedia subscriber, so can't check for sure).

Tamesis' forecasts note 8c EPS last year, rising to 14c EPS this year and then falling to 11c EPS next year (2021), which would validate RH's explanation. But this fall is entirely due to the one-off rise in CAPD's investment portfolio this year, with Tamesis actually factoring in a small loss on the portfolio next year.

Tamesis' numbers for the core business's EBIT before investment gains and finance costs are:

last year : $16.6m
this year : $19.2m
next year : $23.4m

It's a task to calculate the equivalent PAT for EPS purposes as you'd have to adjust Tamesis' figures for the investment gains. But based on this rather rapid EBIT growth and the low P/E even before investment gains, I'm pretty sure the PEG is some way less than his required 1.2 :o))

[hpcg] 25/8/2020 14:24

gleach23 - that is my issue with mechanical systems. Though I should emphasise that a mechanical system that produces absolute returns in all market conditions would be beyond reproach. Filtering out based on PEG misses two potential sources of large gains. Firstly it relies on broker forecasts being precise and neither too optimistic or too pessimistic. They also need to be current, which is less likely for small companies. So it will miss companies about to get in, or in, an upgrade cycle. Secondly another source of profit is multiple expansion. As the multiple increases thus the PEG will go out of spec. So I don't think PEG makes a sensible automated selling criterion. Much better to look at price momentum and whether growth numbers are maintained.

[qs99] 25/8/2020 13:56

haha, nice one gleach

not sure how CAPD can be a sell. Take some profits off table, but surely it is "in the zone" when it comes to its markets, investments, clients?

DYOR

[gleach23] 25/8/2020 13:52

Bid now through 77.5p for 25k. The small sells today have been highlighting the increasing underlying Bid.

I notice Roland Head of Stockopedia has announced he'll be selling his stake in CAPD, which has been the star of his SIF portfolio over the last year, this month. He has strict rules and one is that the rolling forecast PEG ratio should be less than 1.2 which, according to him, it isn't. He's made 53.5% over 13 months so fair enough. That said, he repeatedly mis-spells Jamie Boyton's name so what does he know anyway :)

[celeritas] 25/8/2020 13:31

A few more for me, long way to go yet.

[shanklin] 25/8/2020 12:03

I just obtained quotes online for 50k with HL as follows:
S: 77.0001p;
B: 78.9999p

[gleach23] 25/8/2020 11:57

With market quote @ 74-79, it looks to me like around 325k available on the Offer but the underlying Bid is rattling along and now up to 77.33 for at least 25k.

Still hoping we see a large clearing trade.

[rivaldo] 24/8/2020 10:08

Cheers ds2. Tamesis' note is also on Research Tree now - seemed to turn up unannounced there which is why I missed it!

The upside here is large, and pretty short-term as in the next 12 months. Mali seems to be settling down too, with the President released and the situation relatively stable. And good news from ALS, where CAPD get a specific mention:



I note that Graphex Mining - where ds2 has established that CAPD have a large stake - have a 33% stake in ALS' Tabakorole gold project JV.

[qs99] 22/8/2020 11:48

xd 3 Sept. Small but still time to get some in for that as this progresses higher.

Hoping that next RNS will be one of those big tenders landing.

Good weekends

[gleach23] 21/8/2020 19:30

Surprised the share price didn't budge all day. I suppose it is at multi year highs so hopefully just taking a breath before rerating further.

[celeritas] 21/8/2020 16:22

Added a few more

[qs99] 21/8/2020 14:34

Thanks that looks really interesting and great to have that upside

[dangersimpson2] 21/8/2020 13:37

Tamesis note also out with 102p price target:



This is based on 5xFY20E EV/EBITDA with $23.2m investments and $32.4m EBITDA forecast.

No FY21 forecast is available but if we assume 70% utilisation, a couple of rigs added and $180k ARPOR then this would be c$41m EBITDA. Add in say $4m EBITDA for mining services division and you get $45m FY21 EBITDA.

5xFY21 EBITDA = $225m. If we add in the now $25m of investments then we get a market cap of $250m = £1.39/share.

I can easily see the TP of both brokers getting a significant increase if the 2021 market turns out anywhere near where the company was describing in the results call.