Mitchell Services (ASX:MSV) drilling services growth

Interviews

by Jessica Amir

Mitchell Services Limited (ASX:MSV) CEO, Andrew Elf discusses financial results, strategy and growth in demand for rigs.

Jessica Amir: Hello. I'm Jessica Amir, for the Finance News Network. With me today is Mitchell Services (ASX:MSV) CEO, Andrew Elf. Andrew, thanks for coming, and welcome back.

Andrew Elf: Thanks very much for having me.

Jessica Amir: So for those that don't know, Mitchell Services provides drill rigs for the mining industry right around Australia. Tell us where the business is at today.

Andrew Elf: Look, it's come a long way since we re-entered the Australian market in 2013. Back then, we had a handful of rigs; a handful of people. The market was at historic lows. Today, 65 rigs in the fleet, over 50 running, over 400 people, and some fantastic clients, and heading in the right direction as a business.

Jessica Amir: Nice. And speaking about that level of direction, tell us about your position in the market, the size of the market, and the level of activity.

Andrew Elf: Our business is one of the most diversified drilling companies in Australia. We've got surface and underground operations in base metals, and we've got surface and underground operations in coal. Not many clients have got that. Fifty per cent of the business is surface operations, fifty per cent underground, so very diversified by commodity and by different types of drilling. It really is a good business that's sustainable through the cycle, and works at a lot of major sites.

Jessica Amir: And you mentioned diversification, but you've also got diversification of your clients as well. Tell us about that.

Andrew Elf: Yeah, you can think of Mitchell as like a Qantas. It's a very well-regarded brand. It's been around for 50 years next year. We work for the biggest clients on the best sites. So clients are BHP (ASX:BHP), South32 (ASX:S32), Evolution Mining (ASX:EVN), Anglo Australian Resources (ASX:AAR), Peabody Energy Corporation (NYSE:BTU); those sort of clients.

Jessica Amir: And now, can you tell us about the integration with Radco Drilling?

Andrew Elf: Yeah, Radco was a fantastic acquisition, settled on April 4th this year. It's an underground coal drilling company, so they drain gas in advance of mining in the coke and coal mines. Integration's complete. Business is operating safely, efficiently. The teams have done a fantastic job and the business is performing as expected post-acquisition.

Jessica Amir: And now to your business. Just tell us about performance and share price, starting off with financial performance.

Andrew Elf: Yeah, financial performance has continued to improve. Our first-quarter results released recently I think were outstanding, and a credit to the team. I think it's been many years of hard work to get those results. Obviously our EBITDA in the first quarter of 2019 exceeded FY18's total EBITA. So the percentages are good, when you look at the EBITDA percentage. EBIT percentage shows we've bought asset's well, cheaply, at the bottom of the market. Cash flow is strong, so we've really got a good foundation now to move forward on. The business itself, really performing strongly, and looking forward to a great end to the year.

Jessica Amir: Nice. And how's that translated to your share price?

Andrew Elf: Yeah, the share price has performed well. It's got an upward trajectory at the moment. Those that invested early have done quite well already, but I certainly think that the business is in the best shape it's ever been. It's on a sure footing, generating good cash, and I think there's still plenty of room for the share price to move, hopefully, if the business keeps performing.

Jessica Amir: And now, can you tell us about the over-all strategy and how you're really tracking with that?

Andrew Elf: The whole investment thesis with this one was, Nathan, our Chairman, sold his personal business back in 2008 for about AUD$150 million. It took him 40 years to generate that. This business, we came back in 2013 and the aim was to generate significant value using a public company in a short time-frame, and we're on our way to doing that.

Everything's heading in the right direction to do that. We've bought assets cheaply, we're getting them back to work, we're making some good numbers, and we've really got a good road-way ahead of us.

We're going to pay down debt, keep making cash, and deliver some good results and hopefully reward our shareholders who have been pretty patient with us over a tough market.

On top of that, we've also got some very supportive shareholders. Washington H. Soul Pattinson and Company Limited (ASX:SOL) is a 10 per cent holder, our second-largest holder, and CBG Capital Limited (ASX:CBC) as well. Both long-term holders, and very supportive. So some fantastic support from the big end of town, there, and a lot of other large institutional shareholders sitting underneath those two as well.

Jessica Amir: Great endorsement, indeed.

And lastly, Andrew, where would you like to see the company this time next year?

Andrew Elf: Look, I think we'll be in a even better position. The business will keep performing, it's going to keep producing cash, keep making good profits. We've got AUD$30 million of tax losses available to us, so we won't be paying tax any time soon. The main thing for us is just to stay safe, keep looking after our clients, do a good job, and hopefully reward our shareholders who have been patient with us through some tough times.

Jessica Amir: Wonderful. Andrew Elf, thank you so much for your time.

Andrew Elf: Thank you very much.


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