Shaft Sink Share Discussion Threads

[shrewd_n_sharp] 19/4/2013 13:30

ell in the last couple of days, despite my general views on the markets for the summer, I added just the second share of my portfolio - SHFT. It's a bit of a special situations/turnaround stock and goes into the "risky" part of my portfolio, but is also cushioned as a value/income play.

The features that attracted me to this stock are:

*. It is likely to pay a dividend of 10-14%
*. Has a price to book value of around 0.45, based on tangible net assets not intangibles
*. A PE of 2.4
*. Does have problems but they are temporary and management appears to be dealing with them all (temporary margin issue, a small claim and overexposure to a certain region and commodity) - all being addressed
*. Is bringing in additional board strength
*. Price crashed from around 180p to 40p.
*. Is growing its order book
*. Has been around for decades in its market
*. It has a very deep moat business model which is hard to replicate
*. Has regular and growing deals with industry leaders
*. Has released a trading update forecasting a "significantly improved year"
*. ROCE=18.84%. ROE=18.20%. ROI=10.85%.
*. Debt reasonable and falling
*. Cashflow to increase and Price-to-cashflow ratio at 4.2
*. Price to sales = 0.9
*. Tobin's Q ratio of 0.13
*. Projected dividend rise

It's end of year statement is due soon and the price is moving north and broken through a 40p technical floor. I am very pleased with my purchase. Happy to be on board.

[john09] 19/4/2013 12:09

And we're off

[rolo7] 18/4/2013 20:15

cheers hedgehog something new i learnt cheers.
From feb 2013 TS. Balance sheet will look better as that 13million trade and receivables will be now cash?!

Working capital
As stated in November 2012 variation orders were at an unusually high level and the Company reported it was carrying approximately GBP21 million of variation orders in accounts receivable. Approximately GBP13 million of these outstanding amounts was collected by 31 December 2012, with an additional GBP5 million new claims arising, leaving approximately GBP13 million of variation orders still to be collected at year end. It is anticipated most of the older variation orders will be collected by the end of February 2013.

[hedgehog 100] 18/4/2013 17:51

One of the advantages of holding a main-listed share is that the deadline for the full-year results is shorter: 120 days after the period end, as opposed to a full 6 months for AIM-listed shares. So in SHFT's case the deadline for the 31.12.12 full-year results is the end of April - which leaves just 8 trading days. Though I don't expect them to take it right to the wire.

As I've mentioned before, SHFT is fairly regular in the timing of its final results, and pre-finals trading updates. And previously, there has been no more than two and a third months between the two:

04/02/2011 07:00 UKREG Trading Statement LSE:SHFT
Shaft Sink
14/04/2011 07:00 UKREG Final Results LSE:SHFT
Shaft Sink

20/02/2012 07:00 UKREG Trading Statement LSE:SHFT
Shaft Sink
20/04/2012 07:04 UKREG Final Results LSE:SHFT
Shaft Sink

As SHFT's last trading update was on 13 February 2013, then if the above pattern persists, the results should be issued by Tuesday 23rd. April ... which is of course St. George's Day.

And it would be nice if the results could 'slay a few dragons' in terms of investor uncertainty.

[john09] 18/4/2013 14:52

Back in here. In reasonable size too. Looking for pre and post excitement to next week!

[empirestate] 18/4/2013 00:36

results should be next week, promises a decent outlook.

[hedgehog 100] 17/4/2013 17:38

John09,

I said that SCSW is a big fan of SHFT, not Smit Berry's other publication Momentum Investor. Obviously Momentum Investor goes for momentum plays.

SCSW is sometimes stop-lossed out of its main recommendations, and sometimes chooses to sell them at a loss even if they haven't been stop-lossed. But in the case of SHFT, they haven't been stop-lossed or otherwise sold. The fact that they've 'kept the faith' with SHFT despite its share price fall says to me that they are still a big fan of the company. If not, why haven't they sold it?

Furthermore, SCSW can re-tip a main recommendation from a previous year which has subsequently fallen badly, and not been stop-lossed or sold, as a main recommendation in a later year. That's clear evidence that they can remain a big fan of a company even if its share price initially disappoints badly.

See the following data on SCSW main recommendations 2009-2012:


This data also clearly shows that Shaft Sinkers was a main recommendation in the March 2011 issue at 179p, and in conjunction with the SCSW website info. on its coverage of SHFT shows that it hasn't been stop-lossed or otherwise sold.

[john09] 17/4/2013 10:04

They are not a big fan if they've not mentioned it September - April ... I've subscribed to scsw for 12 years and you know when they're a big fan of a company. Also their sister mag sold shaft sinkers last year at a big loss.. Momentum investor..same editor

[hedgehog 100] 16/4/2013 21:04

John09,

Look at the SCSW leaflet with the latest edition of the "Investors Chronicle" (12th. August), which lists SCSW's 2009-2012 main recommendations, in conjunction with the SCSW website info. on its coverage of SHFT, and you will that SCSW hasn't been stop-lossed out of SHFT (unlike for example PVCS), or otherwise sold it.

The things that attracted SCSW to SHFT initially are still substantially there. But some temporary challenges mean that the shares can now be picked up for a fraction of the price previously.

Let's wait for the next SCSW update and see what they say: I know that the SCSW publisher Smit Berry can recognise a good turnaround story when he sees it, and I wouldn't be at all surprised if he says that the shares are beginning the climb back to 190p.

Remember that it's barely a year since City broker Westhouse repeated its 'strong buy' recommendation on SHFT, valuing it at 170 pence a share:


Also note the following part of that 16 March 2012 article linked above:
"But while this is a very niche area, don't believe for one moment Shaft Sinkers is a small company (whatever the current market capitalisation might tell you).
The company employs around 7,500 people across all areas and last year turned over just short of £220 million."

[john09] 16/4/2013 20:37

A big fan but they last updated in August???!!! Not a fan any more mate

[empirestate] 11/4/2013 01:56

CAPD valued at 2.5 times SHFT. SHFT have superior revenue base of 3 times CAPD. SHFT easily double their own 2012 net profit in 2013.
On balance sheet SHFT are a comparative give away at the current share price

[hedgehog 100] 10/4/2013 18:24

Extract from SHFT's Autumn 2012 IMS:

15/11/2012 07:01 UKREG Shaft Sinkers Holdings Plc Interim Management Statement
"The signing of new US Dollar-based contracts should help to offset the effect of the weakening Rand in the future."

[hedgehog 100] 10/4/2013 18:01

The "Investors Chronicle" has recently (15 March 2013 issue) featured an interesting two page article on the oil services sector, entitled "Buy oil services ahead of new boom".



Here is an extract from the article:

"Valuations in the oil services sector are low by historic standards following some tough years blighted by a North American gas glut, a massive oil spill in the Gulf of Mexico and general economic uncertainty. But all this looks like it could be about to change, making it a prime time to buy into the sector. North Sea expenditure is predicted to boom between now and the end of 2017. In addition, according to US-based GBI Research, emerging markets' demand will underpin a 72 per cent rise in the value of the global oilfield services industry in just five years."


I believe that a similarly positive future applies to the mining services sector.

"The mining services sector is hanging in and expects a brighter 2014
Liam Walsh From: The Courier-Mail February 27, 2013 12:00AM
"..."We seem to have bottomed out in terms of the slowdown," Mastermyne managing director Tony Caruso said...."



And SHFT is expecting a much-improved 2013 after its challenges last year, as these extracts from its last trading update show:

13/02/2013 07:00 UKREG Shaft Sinkers Holdings Plc Trading Update
"Whilst 2012 was a challenging year for the Group with operational difficulties at some of its sites, the well-documented labour strikes in South Africa and a weakening of the Rand, Shaft Sinkers is pleased to report a stronger performance in the second half of the year.
...Outlook
It is expected that profitability for the current year will be significantly higher than 2012, benefitting from a full year contribution from the two new contracts awarded in 2012 (Hindustan Zinc and Kibali Goldmines), an improved operational performance and the contribution from expected new contract awards in 2013. The Group has made significant strides in achieving a return to technical excellence."



Although the London Stock Exchange only has two real mining services companies, i.e. CAPD and SHFT, this does at least mean that they should arguably trade at a premium because of their scarcity value.

[the ghost who walks] 10/4/2013 17:38

I'm also a holder but am in the camp of no divi for 2h. We will soon see and hopefully wrong

[noirua] 10/4/2013 11:48

Not sure I buy all the upbeat rhetoric about SHFT. The lowly South African currency and holds ups mean reduced profits. Maintaining the same dividend would be a departure from the companies dividend philosophy, and they would have to be very confident about the year ahead; on that, I can't see that they can be.

I hold quite a lot of stock and will keep hoping the Eurochem cloud clears but doubt that it will be in 2013. So great value for those not minding mega-risk for a big dividend return, and having a giant bowl of patience.

[rolo7] 09/4/2013 17:25

Great points made there hedgehog my first buy here today. May add more. Think the lower tax rate in 2012H1 results may help going forward, guessing
an eps figure of between (1.6p*3) 4.8p (1.6*4) 6.4p for the year gone using H1 results and knowing pre tax is 3-4million as stated in feb13.

[hedgehog 100] 09/4/2013 17:05

Regarding the dividend, the following are the most relevant parts of SHFT's last trading update:

13/02/2013 07:00 UKREG Shaft Sinkers Holdings Plc Trading Update
"Profit before taxation is expected to be in the range of GBP3 million - GBP4 million (2011: GBP13.5 million)....
Dividend policy
Payment of an annual dividend will reflect the Board's prudent view of the earnings prospects of the Company over the entirety of the investment cycle. Annual dividends per share are expected to be covered some 2.5 to 3.0 times by earnings per share in line with the Company's stated dividend policy.
In October 2012 an interim dividend of 2.4p per share (GBP1.1 million in total) was paid.
...Outlook
It is expected that profitability for the current year will be significantly higher than 2012, benefitting from a full year contribution from the two new contracts awarded in 2012 (Hindustan Zinc and Kibali Goldmines), an improved operational performance and the contribution from expected new contract awards in 2013. The Group has made significant strides in achieving a return to technical excellence."



Some key words in the dividend policy are "over the entirety of the investment cycle" - i.e. the dividends don't necessarily have to be covered 2.5 - 3.0 times by earnings every single year, if the dip is just temporary.

In SHFT's case, pre-tax profit for the last three reported years has been consistently large:-
2009: £12.46M.;
2010: £16.71M. (incl. exceptional £3.8M.: £12.91M. after this);
2011: £13.51M.
And also pretty similar excluding the exceptional credit in 2010, with modest year-on-year growth excluding that exceptional credit.
The 2011 result equated to earnings per share of slightly over eighteen pence.

And the 2013 results are expected to show a significant recovery from 2012. Considering the company's high turnover of about £200M p.a., then a profits 'return to the norm' looks very achievable.

In addition, the company's financial position is strong, with net debt of £8.6 million at the interim stage decreasing to £2.8 million by the end of 2012, and gross cash of £5.2 million at the interim stage increasing to £8.4 million by the end of 2012: i.e. more than enough to cover the £2.28 million cost of a 4.8p/share final dividend. In addition, the company had £13 million of variation orders still to be collected at year end, and it anticipated in the 13 February trading statment that most of the older variation orders would be collected by the end of February 2013.


Remember that the interim results of 30 August 2012 reported eps of just 1.6p/share, but still declared an interim dividend of 2.4p/share. They also included the following secion on dividend policy:

"Dividend policy
The Group's progressive dividend policy is to keep dividends broadly in line with earnings over time. Dividends are expected to be paid semi-annually in respect of each year with an interim dividend paid in October and a final dividend paid in May of the following year. Interim dividends are expected to represent around one third and final dividends around two thirds of the full year dividend for each year. Annual dividends are expected to be covered some 2.5 to 3.0 times by earnings per share.
Despite the lower results for the first 6 months of 2012, the Board has declared an interim dividend of 2.4 pence per share which reflects its confidence in the Group's ability to generate progressive earnings over time. This will be payable on 5 October 2012 to shareholders on the register at the close of business on 7 September 2012."

[philjeans] 09/4/2013 16:31

Agreed - took another 10k here today. Bags of headroom!

[gucci] 09/4/2013 16:30

starting to look intreresting

[empirestate] 09/4/2013 15:31

added a few more here today, i think we are gonna break the trend now. last years performance already well priced in so a re-iteration of the outlook should spur on a solid recovery here and an improvement in target prices imo

[rolo7] 08/4/2013 20:28

agree with you ghost, think next year divi will be back though

[the ghost who walks] 08/4/2013 20:06

Not clear the divi will be that size. They say per-tax profit will be 3-4mn and then after that divi should be 3.5x covered and that they already paid 1.1mn. If u take it like hat it means no dividend for second half. Elsewhere they talk about over the cycle dividends. So it's not clear that there will be a dividend second half.

[hedgehog 100] 05/4/2013 19:16

Empirestate - I totally agree.

Declaration of a final dividend of 4.8p per share is expected, which at SHFT's current mid price of just 38.75p would represent an immediate yield of nearly 12.4%. With a further 8.1p/share (interim + final dividends) expected over the 12 months subsequent to that. I.e. investors now should get about a third of their money back in dividends within about thirteen months!

Moreover, the dividend will send out a strong signal about the continuing success of SHFT despite recent challenges, and of it's confidence in the future. And of its strong financial position compared to most small mining sector companies listed in London.

The Investors Chronicle said of Central Asian Metals (CAML) about three months ago:
"It's one of just three Aim miners that pay a dividend."

That's only about two per cent of the mining companies on AIM.


CAML's dividend has helped to drive its strong recent share price performance.

And the same should apply to SHFT, especially as it has the added attraction of being a main-listed stock.

(With the new tax year starting tomorrow, the funds from new 2013-2014 tax year ISA subscriptions will soon be hitting the markets ... and AIM stocks are still excluded.)

[empirestate] 03/4/2013 14:41

results shortly should lead to a re-rate here regardless of the arbitration imo.