Capital Ltd experiencing most positive trading conditions in its history

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Capital Ltd (LON:CAPD) is experiencing some of the most positive trading conditions in its history, the Africa-focused mining services firm said alongside its full-year results.

Demand for drilling services has increased strongly from the last quarter of 2020, building further in the first quarter of this year and is particularly strong in West Africa where the group now has 41 rigs, it said.

It expects its drill rig fleet size to increase by 17 rigs with the majority allocated to previously announced contracts with Sukari, Bulyanhulu and Geita; while it also noted strong demand for laboratory services with MSLABS working at near full capacity across all major laboratories.

“We are highly encouraged for the year ahead given favourable operating conditions are continuing,” said executive chairman Jamie Boyton.

“The gold price, our principal commodity exposure, remains at elevated levels and equity markets continue to be supportive for capital raising activity, with fundraisings for Juniors and Intermediates experiencing a significant month-on-month uptick in activity during February, with the greatest number of large financings in recent history, a strong indicator of future demand,” he said.

“Additionally, we have had a strong start to 2021 with numerous contract awards across the West African region, together with the new long-term contracts at the Geita gold mine awarded already to date.”

The positive update was provided in its 2020 results announcement.

Underlying earnings (EBITDA) rose 24% to US$33.8mln as revenue grew 18% to US$135.0mln.

Capital Ltd said revenue guidance for 2021 was US$185 to US$195 million driven by improving drill rig utilisation, contract extensions and expansions from existing long-term contracts and the start of the load and haul waste stripping contract at the Sukari gold mine in Egypt.

The company’s strong performance in 2020 was reflected in the decision to pay a final dividend of 1.3 US cents per share, up 86% from the year-earlier final payment, taking the total dividend for 2020 to 2.2 US cents (2019: 1.4 US cents) .

“Capital’s strategy proved resilient against the challenges of 2020 and our performance was outstanding,” said Boyton. “We delivered significant revenue and profitability growth, along with the achievement of several strategic highlights.

“Not only did we achieve a transformational milestone with the award of our mining business’s first major earthmoving contract with our long-term client Centamin, which is anticipated to deliver incremental revenues of US$235 – US$260mln over four years, but we also delivered outstanding results across all our business units,” he added.

House broker upbeat

House broker Berenberg said the results were driven by better mark-to-market profits on investments and lower costs.

Market conditions remain strong added the broker with the outlook bullish for the rig market while management continues to suggest a buoyant environment, with strong demand for its rigs (particularly in West Africa), an upbeat environment for its MSALABS business and a highly active tendering market across all business activities.

Finally, the Sukari waste contract continues to progress well.

“We continue to believe that Capital is extremely well placed to benefit from a very strong demand environment in mining, with upside pressure coming in the form of higher utilisation rates and pricing.”

Berenberg has a target price of 100p compared to 68.8p, up 12% today.

 

–adds broker comment, share price —

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