Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Capital Drilling widens its net for income opportunities
Capital Drilling (CAPD) 54.7p
Gain to date: 43.9%
Original entry point: Buy at 38p, 14 July 2016
Don’t be put off by Capital Drilling’s (CAPD) latest full year results. Resurgence in activity across the mining sector might have suggested its results would show booming profit. That wasn’t the case.
Not only did the company remain loss making, it also saw average revenue per operational drill rig fall 5.9% to $177,000.
Closer analysis of the numbers shows that Capital Drilling is making good progress and the market backdrop continues to be more favourable.
A lot of the new business in the year came from a revival in exploration drilling for gold miners which is currently less profitable for the group.
‘Pricing for exploration drilling is still low relative to historical levels,’ explains executive chairman Jamie Boyton. ‘We’ve started work on two-to-three month jobs. They’ve been single shifts not double shifts we see with production drilling. As the mining cycle improves, we will see double shifts and higher rates with exploration.’
Boyton says most of the contract opportunities for exploration drilling lie in gold, although he believes there could soon be more work in base metals in light of recent commodity price gains.
Importantly, Capital Drilling saw a return to revenue growth in 2016 when looking at all its drilling work. Its rig utilisation rate increased from 34% at the start of the year to 58% at the end of the year.
The company is now making plans to offer a broader range of services than drilling. It will invest up to $3.8m in a private laboratory testing business called A2 in a bid to get more money from its existing clients.
‘If you look at historical mining cycles, the best margins among mining service companies are found with lab businesses,’ says Boyton. ‘One of the biggest complaints from miners is the slow pace at which they get lab results back. It holds up their decision making.’ He hopes A2 will be able to provide a more efficient service.
FinnCap has a 95p price target and forecasts a return to profit in 2017. We remain big fans of the stock, which is also one of our top picks of the year. Keep buying at 54.7p. (DC)
Important information:
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
Issue contents
Big News
- 888 comes up trumps
- Argos saves the day for Sainsbury’s
- The fund which can help you beat inflation
- Setting the course for Brexit
- Has Royal Mail delivered for investors?
- Investor makes £2bn move on Anglo
- Watch NHS risk with Medica
- AstraZeneca to take a dose of Circassia
- Cheap mortgages could free up cash for investing
Editor's View
Great Ideas Update
Investment Trusts
Larger Companies
Main Feature
Smaller Companies
Story In Numbers
- 1.01%: BEST RATE FOR CASH ISA
- UK Media Companies
- FTSE 100 Stocks - Best Performing
- 2.1%: House price growth in East Midlands in top form
- $23 billion: Behemoth created by Vodafone India merger
- Hansteen disposal worth more than its market cap
- 15%: Rights issue might not solve Tullow’s debt problem
- 22%: Recruiter enjoys strong growth in Asia