Mitchell Services (ASX:MSV) FY19 results & outlook


by Jessica Amir

Mitchell Services Limited (ASX:MSV) CEO, Andrew Elf talks FY19 results, improved trading conditions and strategy.

Jessica Amir:
Thanks for your company, my name's Jessica Amir for the Finance News Network and with me today from Mitchell Services (ASX:MSV) is the company's CEO, Andrew Elf.

Jessica Amir: Andrew, welcome back to the Network and thanks for coming to our investor event.

Andrew Elf: Very good, thanks for having me again.

Jessica Amir: So just before we get underway, Andrew, for those who aren't familiar, you are one of Australia's leading providers of mining services in Australia and globally. But just give us an introduction.

Andrew Elf: Yeah, absolutely. The company's 50 years old this year, so the brand itself is very highly regarded. A lot of people would say that we're similar to a Qantas (ASX:QAN) in the drilling services sector, so it's highly regarded and been around a long time, and we work for some of the largest mining companies in the world, Glencore, Peabody, Anglo, BHP (ASX:BHP) and others. So, it's a very diversified drilling company, we work surface operations, underground operations, in minerals and in coal and all over Australia. There's 69 rigs in the fleet and it's a very high quality business working on some of the best mine sites in Australia.

Jessica Amir: And you've also recently handed down your full year 2019 results with growth across all key metrics. Take us through some of the key highlights.

Andrew Elf: It's certainly a breakout year for the company. I think I couldn't be prouder of the team in everything they've achieved. Significant increases in revenue, significant increases in EBITDA, significant reductions in debt that we used operating cash to pay down, no lost-time injuries with over 400 people in the business. We declared a dividend before 30 June, which has now been paid as well. So, from a financial perspective, certainly a breakout year for the company and a great result.

Jessica Amir: And you've also seen quite a significant pickup in activity in the past quarter. Just take us through that.

Andrew Elf: Yeah, the market conditions have certainly continued to improve. Our pipeline is very strong across the board, across all commodities, surface and underground. Certainly the pickup that we've seen in the market so far has been measured and sustainable and pricing wise we're probably still 10 to 30 per cent off previous cycle highs. I think it's fair to say that we're still in the early stages of the cycle. I think the junior exploration companies are still finding it hard to get money and funding and are unable to put that money into the ground and drill. But certainly on the other side, the companies that have mining operations and are cash producing and the larger companies are very active in larger budgets and increasing spending. So, for us it's certainly bodes well for another fantastic year ahead.

Jessica Amir: And, now just on your spread, just take us through that.

Andrew Elf: Certainly. So, it's a, as I said, a very diversified drilling company. We're probably sort of 50 per cent surface, 50 per cent underground and we'd be 50 per cent coal and 50 per cent base metals spread across gold, silver, zinc, et cetera. So, certainly the coal is all coking coal, there's zero exposure thermal, so that's certainly the place that you'd want to be, it's very strong. And then state-wise it's a Queensland based company with probably 65 to 70 per cent revenue in Queensland, which is pretty strong in the coal, but certainly operating in all States across Australia as opportunities come up in the BHP (ASX:BHP) and Olympic Dam in South Australia and Newmont over in Western Australia in Kalgoorlie.

Jessica Amir: You've had a lot of profound wins, indeed. Now, we'll just like to pause on competitors. So, you are one of the few people, or in fact the only, that's so diversified, but who are your competitors and how do you stack up?

Andrew Elf: Yeah, there's different competitors in it and obviously different sectors as you say, Lucas would be a competitor in the surface coal and Swicker competitor in the underground minerals, but I certainly think rather than just doing one type of drilling in one commodity or either 100 per cent service or 100% per cent underground, it's certainly a good spread and a good mix on some of the best mined sites with the best clients that protects our business as best you can that is cyclical in nature.

Jessica Amir: And you've also just entered into a new era for Mitchell, drilling and blasting. Just take us through that key win.

Andrew Elf: Yeah, that was a really good contract win for the company. I think an important point to consider with us as a drilling company is where our revenue comes from, not just the commodities that we work in and who we work for. A majority of our work is on mine sites for the largest companies on some of those lowest cost producing mine sites that keep operating through the cycle. So, something that we focused on is brown field mine site work and that's over 90 per cent of our business. And certainly the drill and blast is, you know, if you're not drilling and blasting the mine's not producing. So, it's a good steady long term work that's ongoing in nature and certainly a fantastic win for the company.

Jessica Amir: Moving to your share price, it's up 57 per cent year-to-date, so well done. So, a lot of shareholders are definitely cottoning onto your success story, but what will it take to continue to build on this momentum?

Andrew Elf: Yeah, fantastic to see the share price up. Obviously a lot of hard years of work have gone into that and it's nice to see the re-rate that we've had. I think number one, we've done everything we said we'd do, which is most important and we've stayed on strategy and achieve our targets and goals, and secondly, we've now got coverage in place from Wilsons and Morgan's. So, I certainly can't talk to what the share price is going to do, but I can say that we're going to have another good year with revenue and EBITDA up again this year. And, when you read the research reports from Morgan’s and Wilsons, they're certainly got a target price on the stock of circa $0.09 and we're currently in the low sixes. So, I think it's probably fair to say that if all goes well and to plan, then potentially there's some further upside in that share price for investors.

Jessica Amir: And just lastly before we let you go, is there any final words that have for investors or potential investors today?

Andrew Elf: Look, I'd just say thanks to all of our shareholders for their ongoing support and encourage anyone that's potentially looking at the stock to read the coverage. I think it's really high quality and worth aa read. Thanks to our existing clients and certainly lastly and very importantly, thank you to all of our people that have worked so hard to make last year a great success.

Jessica Amir: Thank you so much for coming along, it's been an absolute pleasure, Andrew Elf.

Andrew Elf: Thanks for having me in. Thank you.


Are you a 708 sophisticated investor?

If you are a sophisticated investor as defined under Section 708 of the Corporations Act (net assets of $2.5 million or annual incomes in excess of $250,000).

We can alert you to wholesale investment opportunities not available to regular investors.

Please subscribe if you would like to be alerted to these types of opportunities.