Hughes Drilling Limited ("HDX")

[steve fleming]

New look HDX so good time to start a new thread on HDX

Today confirmed the purchase of Reichdrill, their major supplier/manufacturer of production drilling rigs (ie integrating upwards). Acquisition multiple pretty reasonable = 3 x CY13 EBITDA.


HDX now control the IP/brand name, and order book of a premium drill manufacturer with global reach - makes HDX a fully integrated manufacturer / distributor and operator, which makes it a pretty interesting investment proposition.


REichdrill is a 65 year old company with strong reputation.
HDX now provides it with the public company backing, and industry contacts, to aggressively expand sales of drill rigs into Asia and Africa. Also can use HdX's operating experience to refine and optimise the manufacturer of the drills...also diversifies revenue away from coal and Australia.

Also HDX benefits significantly from retention of cash margins on sales by ReichDrill to HDX.
(Ie FY12 – 10 units purchased @ $300k margin per unit = $3m CASH saved)

HDX growth to come from existing coal drill market in NSW/QLD
47% share of the QLD & NSW contracted production drilling market, demand continues to exceed availability of suitable equipment (production rising, competitor shrinkage).
Significant growth locked in: Significant expansion of contracted rig fleet during FY2013 and beyond

Plus + now able to also target growth from expanding the REICHdrill sales. (ReichDrill currently has the most external Drill Rig orders on hand that it has had for the last 4 years.)

Valuation looks Ok as well
Assume $3m EBITDA (from Reichdrill) + $22m EBITDA for HDX = $25m
Current EV for HDX = 0.36 x 180m + 28m debt = $93m
= less than 4 x EBITDA

Obviously, with a coal focused mining services company, with some debt, it is not without risk.
But Hughes Drillling has been around for 40 years and Reichdrill 60 years so they have obviously managed to survive many a mining cycle.
If these drills are as great as HdX say they are, to own the IP provides a new and genuine avenue for growth, as well as securing for HDX drills to service their own contracts.
Likely to be short term weakness though as the 32c placement is digested.


Will see how it plays out.

[steve fleming]

Are their drills different from other competitor drills? What's stopping Boart from deploying their idle rigs into the HDX market at cost, in order to guarantee other mining services work? Its going to get nasty out there, how are HDX positioned to see off the competition who will now do whatever it takes to get new contract work? That is what I would be asking management. Its not the same game as it was 6-12 months ago - just ask BHP or RIO CEOs.

Hi KW - if you are interested in this company, you should have a read one of their recent presentations.

There is only one other real competitor that offers coal blasting in the NSW/QLD coal blasting market (not Boart). There is actually a shortage of coal blasting drills.

HDX is currently winning significant market share (42% to 47% in 1H13) through competitor displacement.

The Reichdrill drills offer substantial maintenance and productivity advantages.

Per the presentation:

"Demand continues to exceed availability of suitable equipment (production rising, competitor shrinkage)


Significant growth locked in: Significant expansion of contracted rig fleet during FY2013 and beyond."

[Joshuatree]

Hi Night owls. I also see REICHDRILLS as a moat around the business strengthening it by giving full control and more cost savings .

[steve fleming]

http://www.proactiveinvestors.com.au/companies/news/40874/hughes-drilling-a185m-placement-reichdrill-inc-acquisition-transformational-40874.html

Hughes Drilling (http://www.proactiveinvestors.com.au/companies/overview/2402/Hughes+Drilling)’s (ASX: HDX (http://www.proactiveinvestors.com.au/companies/sponsors_landing/2402/hughes-drilling-2402.html)) A$18.5 million placement and acquisition of its rig provider Reichdrill Inc. for US$8.9 million are transformational for the company as it moves from being a pure growth stock to a growth and yield stock.

Chairman Robert Hackett told Proactive Investors the placement to existing shareholders and new institutional and sophisticated investors in Australia and overseas would turn the company’s balance sheet considerably more conservative.

This - together with the increase in operating cash flow - would enable the company to turn into both a growth and yield stock.

Beyond that, the placement of 57.8 million shares priced at A$0.32 each will also double the free float of the company’s shares and transform Hughes from what has essentially being a retail stock to one weighted more towards institutions.

It will also lift its market capitalisation from the sub $50 million level, which tends to fly under the radar of investors, up towards the $100 million level.

This would likely attract the active interest of more investors in the company.

“There would also be a positive perception shift arising from the Hughes family holding post capital raising diluted interest of 39% from the previous 58%,” Hackett added.

[percy]

steve,
thanks for that post.

[Joshuatree]

All Good . Its well worth listening to boardroom radio interview with HDX. Lotsa win/ win ticks with this transformational transaction plus other info like Reichdrills ramp up in demand coming from the USA too.

[trackers]

Thanks for the analysis Steve as always... picked up some today

[Joshuatree]

GREAT to see an Fund K2 Asset Man, now a holder of 7.2% of HDX shares today. $5000 of shares @ 32c offered to shareholders on register 14th march sent out re 19th on.

[steve fleming]

Hughes Drilling [HDX: AU], a listed Australian specialist drilling company, could look to divest its delineation drilling business in the future as it focuses on its blast hole drilling unit for the coal mining sector, said chairman Robert Hackett.

The Yatala, Queensland-based company has previously flagged that it considers its delineation drilling business non-core, Hackett said. It represents less than 10% of Hughes’ revenue and would be worth less than AUD 10m in the event of a sale, he added. The business provides delineation and geological drilling services from pre-feasibility site mapping to mine expansions. Should Hughes decide to sell the business, this would involve the sale of its 14 rigs and related contracts, he noted.

Hackett said that the company would be targeting FY14 to FY17 earnings growth driven by the demand for its blast hole drilling services, as coal mines are ramping up production for existing projects. Hughes also has a five-year objective to grow its Express Hydraulics unit to contribute 25% of revenue and profits. Express Hydraulics sells and distributes drilling consumables and spares.

Last week (March 15) Hughes acquired US-based Reichdrill, a supplier of blast hole production rigs, for AUD 8.69m (USD 9m). At the same time it raised AUD 18.5m via a private placement to existing shareholders as well as new institutional and sophisticated investors. Funds raised would also go towards acquiring new production rigs. Baillieu Holst acted as lead manager to the placement.

By bringing on board more institutional shareholders as part of the equity raising, Hughes was trying to transform its ownership structure to improve liquidity in its stock, Hackett said. Prior to the placement, Hughes’ founder Bob Hughes held 58% but this has now been diluted to 39%.

Hackett added that Hughes is aiming to be able to pay dividends in the future. In the next 12 months, Hughes will focus on integrating Reichdrill and expanding its distribution arrangements in other regions. It is also looking to organically grow its production drilling and Express Hydraulics business.
Hughes Drilling currently has a market cap of AUD 43m (USD 44.6m).

------------------------------------------------------------------------------------------


Share price continues to weaken towards the placement price, but Management continue to publicly forecast short/medium term growth “FY14 to FY17 earnings growth driven by the demand for its blast hole drilling services, as coal mines are ramping up production for existing projects”….

market obviously currently do not believe the directors and all their talk of growth, which is probably fair enough, given the negative mining services backdrop at the moment.....so pressure is on to deliver (which to be fair, they have to date)

DTQ, another microcap driller, was all over the place today on announcement of a rights issue.

[Corporate]

I received my HDX SPP documentation in the mail on Friday. I will definitely be taking the full A$5k at 32c.

[steve fleming]

THe coal market is pretty tough going at the moment. Prices and profits are substantially down, and this sentiment is likely to be impacting HDX (in addition to capital raising selling pressure).

However one thing to be aware of is that most arrangements between coal producers and rail and port and storage providers are subject to repressive 'take or pay' contracts. that is, producers pay for space even if they don;t use it.

As a result production volumes need to be maintained in order to avoid some pretty major penalties for not taking up their rail/storage/port commitments. Miners are often better off exporting coal at a loss to ensure that they have the cash flow available to meet the requirements of service providers.

This works hopefully in HDX's favour as it means that coal production volumes are maintained during low price points of the cycle.

[Joshuatree]

Thats a very important piece of info , thanks Steve. So Coal companies are winning twice with a consistent, reliable, quicker maintenance young Reichdrill fleet with less downturn costing less and crucially filling the wagons, they're locked into paying for.

[macduffy]

As expected, the market has come back to the SPP price of 32c, albeit no sales so far today.

There is provision for acceptance and payment via BPay so I'll leave a decision to a little closer to closing date of 17 April.

[NZSilver]

Just deciding where to put some money I have saved up, seems like a lot of shares are fairly valued to over valued. I wasn't going to undertake in the spp, however after my research, it looks like its one of the most undervalued shares on the market. So I'm in.

[cloggs]

Can anyone tell me - Is there an advantage to buying via the SPP when the price is tha same on the market. Want to get some more at this price, but if I can buy it on market for the same price It'll save me the bother of filling in the forms etc.

[macduffy]

There's a saving in brokerage - none via the SPP.

Note though that there is a possibility that the SPP applications could be scaled back. No target amount is specified to be raised but there is a mention that directors may not participate to allow " a greater allocation to shareholders".

[cloggs]

Discovered billpay. Nice. Very convenient.

[macduffy]

Discovered billpay. Nice. Very convenient.

Yes, takes care of those nasty mailing delays too!

The research report from Baillieu Holst that the company sent shareholders recently made interesting reading. As corporate advisers to HDX they have "restricted" their recommendation, as per normal. ie they don't make one!
They do, however, provide a valuation, or rather, several - a DCF based valuation of 73c; a valuation based on a FY14 EBITDA multiple of 3.5x of 47c; and a "blended" (50/50) valuation of 60c. Whichever way they look at it, the SPP at 32c looks worth taking up. I've done so.

[macduffy]

Thanks, KW.
I wonder how long it takes for lower prices and/or production to impact HDX' contracts? Commercially sensitive, of course, but presumably there is some mechanism to "adjust" costs to the mine owner? At the very least, it gives them a big card to play at contract renewal time!

[percy]

This is why I remain skeptical of HDX - I cannot for the life of me see how one company can be doing so well when the rest of the industry is falling over. I'd be very cautious as to their future prospects - especially with so many contracts due for renewal in the next 12 months.

http://www.theage.com.au/business/mining-and-resources/ausdrill-dives-on-downgrade-20130417-2hzaz.html

Looks as though HDX will have no trouble getting experienced drilling staff.!! lol.

[steve fleming]

This is why I remain skeptical of HDX - I cannot for the life of me see how one company can be doing so well when the rest of the industry is falling over. I'd be very cautious as to their future prospects - especially with so many contracts due for renewal in the next 12 months.

http://www.theage.com.au/business/mining-and-resources/ausdrill-dives-on-downgrade-20130417-2hzaz.html

I agree, its strange that HDX are so bullish, talking up their growth and ordering new drills when there is such negativity around the sector.

Part of it can be explained through production volumes holding up (Coal exports out of Newcastle and Qld for March Qtr were up YoY, but down vs Dec qtr becos of the weather). As noted in the story "Ausdrill said its core business of mining services in Africa and Australia has largely continued to perform as expected due to the focus on mines already in production",

You'd think Management, who are pretty experienced, would have pretty good visibility as to outlook, and wouldn't be making all these statements around continued sustained growth without sound basis.

I guess there is the risk that the situation is very fluid, that Management is caught unawares. But again, the risk would be greater at the exploration stage, where there is less lead time involved and it is a lot easier to turn off the tap.

But for production drilling, years and years of planning/construction is involved in mine development/expansion - it is not something that can be easily halted when you already have signed forward contracts/offtake agreements, already secured port / rail commitments etc...makes it a bit more difficult to say, sorry guys, we have decided to stop producing!

But in the medium term, so much depends on whether current prices are the low point in the cycle....commodity pricing adds another level of risk, like any mining/mining services play which definitely needs to be accounted for in portfolio allocation/construction.


.

[Joshuatree]

I see Robert Hughes has dropped from 60 to 48% ownership in HDX announcement today. Good i would think going under 50.But he didnt take up his rights maybe not a vote in confidence or?

[steve fleming]

But he didnt take up his rights maybe not a vote in confidence or?

It was an SPP only - no rights issue. SPP not finalised yet!

[NZSilver]

Share price lost 25% since I brought in.... things not going to well??

[percy]

Just as well Phaedrus is no longer here.
I think he would have shot me.
No fool like an old fool.
Thanks for the reminder KW.!!!!!

[Joshuatree]

Short term thinking imo. Sure the current s/p aint wonderful but i still believe in the contrarian view that HDX has a big competitive advantage for a while and has been pulled down with sentiment in other mining services co's. Im not a short term trader.

[steve fleming]

After months of negativity around coal, am starting to see some positive signs.
The lower AUD will certainly assist coal producers, and Whitehaven is up over 20% this week.

-------------------------------------------------
CHEAP COAL IGNITES ENERGY BATTLE

Currencies are not the only asset at war. Energy too is engaged in a race to the bottom, which is producing unexpected results including the restoration of coal as the world’s preferred low-cost fuel for producing electricity.
It’s too early to tip coal stocks as a buy, mainly because there is the potential for a fresh round of government interference in the market. But demand for coal is rising in Europe and the US, and it remains strong in Asia.
Missing, so far, from a complex equation triggered partly by the failure of Europe’s carbon emissions system, is a meaningful rise in the price of thermal coal, the low-grade material used by power generators.
But what the demand picture does show is that some low-cost coal producers have been oversold and that major coal producers, including Rio Tinto, Xstrata and BHP Billiton, should see a profit recovery from their hard-hit energy operations sooner rather than later.
Even massively discounted pure coal plays, such as Whitehaven Coal, could rebound once corporate uncertainties are cleared away.
While the message for investors is not a clear buy signal, it is a reminder that forecasts about future energy supply and demand are proving to be incorrect.
The biggest failure is the Peak Oil theory – a popular belief of a few years ago that predicted a time when liquid fuel supplies would dry up. Not only has this not happened, but the supply of liquid fuels (especially natural gas and associated liquids from shale) is rising, especially in the US, with many countries rushing to join the shale revolution.
The second major failure has been European attempts to control emissions of carbon dioxide from burning coal. While Australia is determined to try and follow Europe in pricing coal out of its energy equation, the rest of the world is not.
Boiled down, the energy war is all about “economy vs environment”, with regions that once championed anti-coal measures forced to join the move back to coal. This is mainly because it’s an abundant energy source, and is cheap when compared with environmentally-friendly energy sources such as wind and solar.
Environmentally, coal might be public enemy No.1 but, in the real economy, it is reclaiming its status as the low-cost fuel of choice with government attempts to price it out of the market proving futile, so far.


Read more at Eureka Report: http://www.eurekareport.com.au/article/2013/5/8/coal/cheap-coal-ignites-energy-battle#ixzz2SmLEPGhO

[Stranger_Danger]

Re WHC, what about the Tinkler overhang?

That is my reason for still keeping away.

[steve fleming]

Re WHC, what about the Tinkler overhang?

That is my reason for still keeping away.

SOME of the nation's most marginal miners could see their earnings improve dramatically if the dollar continues to slide, new research shows.
An analysis by RBC Capital Markets found that a further pull-back in the value of the dollar against the US dollar to US89c could see net profit at some Australian mining companies soar by more than 36 per cent.
Whitehaven Coal's profits would climb 10-fold.

http://www.theaustralian.com.au/national-affairs/treasury/prospect-of-higher-profits-for-small-miners-as-dollar-slips/story-fnhi8df6-1226643421957


Having Tinlker and his dramas on the registar is not ideal, but it will ultimately be the fundamentals (including any AUD fall) that drive WHC’s price (and other Australian coal miners )

[steve fleming]

An update from Ballieu Holst on HDX last week titled "Positive outlook and appealing value’ noted that "The current market rating for HDX seems disconnected to the reality of a stock not exposed to discretionary expenditures"

Obviously sentiment is totally against HDX, but if you look behind the anti-mining services sentiment, then you will see a growing, almost defensive type stock on a forward PE of 2.

Ballieu Holst emphasise that HDX is a low cost operator that will ACTUALLY benefit from the cost restructurings taking place at the moment.
I.e. replacing highly unionised, high cost labour with an efficient, low cost operator such as HDX.

Ballieu Holst continue to forecast EPS growth into FY14 of 10%, on the back of taking market share from higher cost operators.

[steve fleming]

An update from Ballieu Holst on HDX last week titled "Positive outlook and appealing value’ noted that "The current market rating for HDX seems disconnected to the reality of a stock not exposed to discretionary expenditures"

Obviously sentiment is totally against HDX, but if you look behind the anti-mining services sentiment, then you will see a growing, almost defensive type stock on a forward PE of 2.

Ballieu Holst emphasise that HDX is a low cost operator that will ACTUALLY benefit from the cost restructurings taking place at the moment.
I.e. replacing highly unionised, high cost labour with an efficient, low cost operator such as HDX.

Ballieu Holst continue to forecast EPS growth into FY14 of 10%, on the back of taking market share from higher cost operators.

Further comments on HDX by Ballieu Holst:

"HDX has not experienced any reduction in demand for its blast hole services despite a heightened cost focus by mining companies and a marked slowing in contract awards across the mining services sector over the past 3-6 months.

Loss or non-renewal of existing contracts: unlikely in our view given HDX’s performance record"
Obviously Ballieu Holst are not fortune tellers and things can change very quickly.

[FarmerGeorge]

Have been following this one for a while now. Do not currently hold.

Circa 2x Fwd P/E looks cheap given level of contracted revenue. Only 6 weeks from balance date, say another month until NPAT is announced at perhaps $11m+ on mkt cap of $25m, or less if it keeps sliding. A couple of key contracts due late in the CY to keep us guessing.
Balance sheet could look a little scary in these post-GFC times but debt looks like it's pretty much all asset finance through WBC and is 'roughly' contract matched so can live with that.

Steve fleming is it possible to post link to that research report?

Someone else convince me this is a bad investment at current levels?

[FarmerGeorge]

Thanks KW - we must have been writing at the same time

[Joshuatree]

Farmer George its tricky to be a contrarian here, you have to make your own call;im not buying ,or selling but sitting for better, hopefully; certainly some risk lurking and sentiment is not being selective in the M/S sector.

[FarmerGeorge]

Quite right JT - we all have to make our own call.
My question was more just trying to draw out anything fundamental I may have missed here. For example, when you say 'risk lurking' are you referring to anything in particular (that I may be unaware of) or just the sector concerns highlighted by falling share prices all over the show (even ANG & FGE getting smacked today!).
Just looking over the thread there are a few playing devils advocate (or is it devil?) which is great to keep perspective.

[Joshuatree]

Hi FG, not really.Im not very good at joining dots , remembering figs etc. Reading all the threads again is helpful , good points pro and con for HDX. How long HDX can keep its competitive advantage for. what the price of coal is going to do, how much further arethe general M/S companies going to suffer, the exchange rate etc, renewing drilling contracts some of which are coming up, will that be as easy as we think etc. The company spending more on buying Reichdrills , aggressively going for it rather than paying down debt. Im hopng it will pay off but there are less risky stocks and sectors out there. KW has some good points.cheers JT

[steve fleming]

http://stocknessmonster.com/news-item?S=HDX&E=ASX&N=736987

Hughes (HDX) FY13 Revenue and profit growth continues



Utilisation of the expanded fleet continues at 97%.
Clients have advised of an increase in required metres to be drilled reflecting a step-up in coal production. Consequently utilisation is expected to remain at or near 97%.

The growth of Hughes’ production drilling activities is attributed to:


- Australian coal production rising (exports are expected to rise 13% this financial year).
- Hughes operating in coal mines that are generally lower on the cost curve.
- Hughes’ blast hole operations being a key part of an operating mine’s production process.
- Expanded demand from Hughes core "blue-chip" client base who’s objective is to reduce their average cost per tonne.
- Availability of quality equipment from highly productive service providers such as Hughes remains limited.




Hughes’ positioning as an essential service provider in the production process of operating mines largely shields it from the problems faced by other service providers with business models focused on the exploration, developmentor construction phases of new mines.

__________________________________________________ ______

So, as highlighted previously in this thread, HDX represents pretty much a defensive business, sitting on a PE of 2ish.

[steve fleming]

I think the risk is that half of their contracts expire in the next 12 months, so you can bet that customers will be putting the squeeze on. Current profitability levels are unlikely to be maintained - but you don't know by how much it will drop. And I've spent all my dosh on MTU :-)

Thats definitely a risk, though I understand that if the mine owner/head contractor puts the contract out to tender, HDX as the incumbent, should have a strong pricing/margin advantage versus a competitor who has to price in all the set up costs into their pricing.

Anyway, the interesting thing for me about this announcement was the progress HDX has made with Reichdrill which is now expected to represent ~30% of FY14 HDX group revenue.

The Growth reflects the HDX assisted restructuring of Reichdrill’s distribution network, with key targets being Indonesia (the world’s largest coal exporter), Africa, and Russia.

[Joshuatree]

Yes cheers for that steve. Nice to see a positive response in HDX s/p today, the mkt is finally getting it. KW running out of ammo for this particular M/S co.:p

[steve fleming]

More ammo - excess production is resulting in over supply that can't be sold, and now mine shutdowns are occurring
http://news.theage.com.au/breaking-news-business/new-hope-reduces-coal-production-20130528-2n8hg.html

and more,
http://www.theage.com.au/business/mining-and-resources/coal-market-difficult-new-hope-20130528-2n8av.html

Agree that its tough out there in the coal market, but you just have to be a bit careful if you rely on Fairfax.

Oakleigh actually closed because the mine had reached the end of its productive life and run out of coal after 65 years – the shut down had been in planning for over 18 months.

[steve fleming]

After having a go at Fairfax yesterday, hopefully newscorp is more accurate with their take on HDX!

http://www.theaustralian.com.au/business/opinion/unearth-some-mining-services-bargains/story-e6frg9lo-1226652561233

Unearth some mining services bargains




BY:CRITERION
From:The Australian (http://www.theaustralian.com.au/)
May 29, 2013 12:00AM


Hughes Drilling (HDX) 27.5c; E&A (EAL) 64c: BUYING opportunities are emerging in mining services because not every stock is suffering to the same degree, but the market is acting as if they are.

Take Hughes Drilling, which on Friday confirmed its revenue and rig utilisation were in line with 2012-13 expectations outlined last September.

Hughes operates mainly in the Queensland coal sector and is exposed to producers rather than developers.

Job pricing remains steady, with rig utilisation at 97 per cent.

Hughes stock has retreated 40 per cent since hitting a 40c high in January, emulating the retreat of Boart Longyear and Ausdrill.

Canaccord Genuity analyst Aaron Muller forecasts current-year earnings per share of 6c, rising to 8c in 2013-14. This puts the stock on an earnings multiple of 4.5 times for the current year and 3.4 times for next year.

Engineer E&A yesterday said it was on target to achieve guidance of a second half similar to the $4.1m posted in the first half.


http://ad.au.doubleclick.net/ad/N7203.4674.NEWSDIGITALMEDIAAUPUB/B7535387.11;sz=1x1;ord=1369889506757?








A "pleasing" third quarter took earnings for the first nine months of the year to $6.04 million. E&A exec chair Stephen Young cited official data showing $268 billion of committed resource projects, with $205bn in the oil and gas sector (E&A is involved in three of the LNG projects).
Unusually, E&A is an investment company with eight independent subsidiaries in heavy engineering, plant construction and maintenance and "fluid solutions". It also has a small corporate advisory arm.
E&A likens its structure to a submarine and its compartments: if one business gets into deep water it won't affect the banking covenants of the others. They also said that about the Titanic's bulkheads, but we're dreamy enough to ascribe a long-term buy.

Hughes is a spec buy: it's either a bargain or too good to be true

[Corporate]

BHP selling is probably a good sign to start buying!

[steve fleming]

BHP takes the axe to its coal mines
http://www.theage.com.au/business/more-tough-love-in-store-at-bhp-20130529-2nbyo.html

Thanks KW. One of the key take outs from the BHP coal update (the presentation yesterday makes for interesting reading) was their intention to massively increase coal production (to lower costs of production) in Queensland. BHP are an HDX client.

"The focus for BHP now is to run its mines hard to boost cash flows, the company said, with capital outlays to be halved to $2 billion over the next two years as major projects are completed.

Part of the spending under way is to ''de-bottleneck'' shipments. BHP's Queensland mines are unable to boost exports at present, but capacity is to be raised to about 75 million tonnes annually over the next few years from an estimated 49 million tonnes at present."

As a current BHP/BMA service provider, this is a good thing for HDX. As an incumbent (which offers significant cost advantages when tendering) HDX should be well placed to tender for these new production contracts at a meaningful (but agree with KW here, may be reduced, bearing in mind, blast drilling is only a very small input cost to the mine operations) margin.

As, Ballieu Holst note, HDX is a low cost operator that should ACTUALLY benefit from the cost restructurings taking place at the moment.

I.e. replacing highly unionised, high cost labour with an efficient, low cost operator such as HDX.

Anyway, this hopefully will be my last post on HDX for a while, am starting to get a bit bored of having to write about it.

Like any company it has got risks, however it is also very cheap (for a reason some might say), and is ultimately leveraged to any growth/contraction of Australian's second largest export (and a massive part of the Australian economy), coal.

[Joshuatree]

Thanks Steve and KW(contrarians contrarian).Im sticking to my contrariwise sentiment in HDX. It is in the right time , right sector, rightreichdrills, right lowest cost efficiency,to do well.Am sitting, waiting for results to speak for themselves.Going on what we know,am expecting Rewards to come. Weary of repeating myself too. cheers.

[NZSilver]

Not sure on others but im still in the red on this one - ive been largely ignoring it however - Trading Halt this morning on open.

[Entrep]

Share acqusition

[yabster]

punters on HC are linking it to Mutiny Gold- but may be stab in the dark (both in halts til Tuesday).

[Joshuatree]

Coincidental imo ,HDX exclusively blast production drilling coal. I just hope its a fillip for the s/p whatever it is.

[Joshuatree]

Buying JSW for re $24.4 mill ; $7 mill in HDX shares @ 26c rest in debt.JSW a leading drill contractor in west aus with 24 rigs , 140 staff. Expands the range of drills reichdrills can manufacture. "Extend our core blast drilling ops into the iron ore mines of NW WA" etc. JSW T/0 re $30.6 mill.

[NZSilver]

Results out, seem positive except drop in eps.

[FarmerGeorge]

Results out, seem positive except drop in eps.


First read through looks pretty good. I think the EPS is down because the earnings over the full year are covering all shares including those issued in the third quarter so it's not a big deal. I'm not sure if we have enough info to do the back calcs but if not audited results should give an idea of like-for-like EPS, or some sort of adjusted figure. Will have to read through more thoroughly but on the face of it this is a really good result.

[Huang Chung]

First read through looks pretty good. I think the EPS is down because the earnings over the full year are covering all shares including those issued in the third quarter so it's not a big deal. I'm not sure if we have enough info to do the back calcs but if not audited results should give an idea of like-for-like EPS, or some sort of adjusted figure. Will have to read through more thoroughly but on the face of it this is a really good result.

Page 12 of the accounting standard might be relevant.

http://www.google.com.au/url?sa=t&rct=j&q=australian%20accounting%20standard%20eps%20calcu lation&source=web&cd=1&ved=0CCkQFjAA&url=http%3A%2F%2Fwww.aasb.gov.au%2Fadmin%2Ffile%2F content105%2Fc9%2FAASB133_07-04_COMPsep11_07-12.pdf&ei=31EgUqyxC8zRkgXax4DICQ&usg=AFQjCNF_XQWwOedHGVRoicHh5pNsdsJ4dw&bvm=bv.51495398,d.dGI

[steve fleming]

Solid results, utilisation rates and margins both remain very high.

More so than the results, I like the strategy HDX has embarked on over the past 6 months.

It is/has transformed itself from an essentially QLD based coal contract driller; to a manufacturer, distributor and operator of production drills for coal and iron ore mines across Australia, and with global sales of its Reichdrill drills (all for a $50m market cap, making $10m + NPAT)

So now it has multiple revenue streams and multiple opportunities for growth, with diversification to limit downside.

It just needs to quickly use all that FCF it is generating to pay down debt.

It also needs to sell itself to the market a bit better. It needs a decent presentation to clearly articulate the strategy and benefits of the JWS acquisition, and what the new enlarged HDX will look like post acquisition.

[Huang Chung]

Steve

How do you rate it against SWK, who design and build their own rigs?

[steve fleming]

Steve

How do you rate it against SWK, who design and build their own rigs?

Hi HC

SWK has a better balance sheet than HDX, and pays a dividend, a bit more mature company than HDX which is in the middle of transforming itself.

HDX has a current rig utilisation of 95% and is focused on non-discretionary production drilling, while SWK has a current rig utilisation of 69% and is exposed more to discretionary exploration drilling.

i suspect that in FY14 HDX will easily overtake SWK in terms of profitability.

ps HDX also design, build and sell their own rigs now, so similar to SWK

[FarmerGeorge]

Page 12 of the accounting standard might be relevant.

http://www.google.com.au/url?sa=t&rct=j&q=australian%20accounting%20standard%20eps%20calcu lation&source=web&cd=1&ved=0CCkQFjAA&url=http%3A%2F%2Fwww.aasb.gov.au%2Fadmin%2Ffile%2F content105%2Fc9%2FAASB133_07-04_COMPsep11_07-12.pdf&ei=31EgUqyxC8zRkgXax4DICQ&usg=AFQjCNF_XQWwOedHGVRoicHh5pNsdsJ4dw&bvm=bv.51495398,d.dGI

Thanks HC - Yep that's what I was getting at.
On a second reading of the announcement I'm not sure my earlier comment on the EPS distortion was correct. Apologies.

[Joshuatree]

Feeling way more comfortable with this investment now. Whilist many are hunkering down in the drilling space HDX is making the most of it and growing for it. Risk reducing s/p accretion ahead.

[steve fleming]

HDX got the lead write up in the latest "Under the Radar" report out this morning.

"Hughes Drilling is, you might have guessed, another mining servicesjunior. This company is trading on a PE of 3 times, which compares to theindustrial average PE multiple of about 15 times. If it expands earnings aswe forecast, get ready for a big return. "

"....It hasmade $16m worth of acquisitions in the past six months, which extends its drilling servicesoperations into Western Australia with the acquisition of JSW. More importantly, it meansHughes Drilling is now a US based manufacturer of drilling equipment, which intends to sellits product around the world, from Indonesia, to Africa, to South America......There is big risk, but trading on a PE of 3 times, Radar would have to say that you’re notpaying much for a drilling company which is rapidly becoming a global player "


Will be interesting to see what impact (if any) this has on a relatively illiquid stock like HDX

[Joshuatree]

Thanks Steve. HDX up from 26.5c to 30c so far on 452.000 shares traded.:cool:

[FarmerGeorge]

Was wondering what was happening here. A bit of attention is no bad thing. In the context of HDX earnings a little bump to 30c is nothing really.

[Huang Chung]

Finally took the plunge.

Well picked Steve.

[steve fleming]

Finally took the plunge.

Well picked Steve.

Re your hc post :)

HugHES DRilling
Trading on a pE of 3 times, this junior drilling company is notpriced for the growth path it is currently on.
THE nAmE SAYS iT All
Hughes Drilling first listed in May 2012 and the bulk of its earnings come from the east coastof Australia where it has 47 per cent market share in coal mining.
Under the stewardship of Bob Hughes, whose family owns 42 per cent, the company hasbecome a tier one contractor, and has a particular area of specialisation, in blast hole rigsused for coal mining production. The rigs are used from the start of the mining process, andthen continually through the life of the mine, to drill into overburden. Hughes drills the holes,then firms like Orica plant the explosives, and bang, the mining begins.
On the east coast it now has 40 production drill rigs, and it is now on the hook to buy
a West Australian contractor for $24m - $7m in equity plus its existing $17m in debt. It isissuing $7m of scrip at 26c a share, delivering it another 24 rigs. It plans to add another fiveto 10 rigs in the West in 12 months’ time, according to Hughes.
BoART longYEAR VERSuS HugHES DRilling
It is fair to say, however, that drilling services doesn’t inspire investor confidence becauseof the high profile delays of big projects by the mining giants. And when you look at theperformance of Boart Longyear, it’s no wonder Hughes Drilling is trading on a PE of just 3times, compared to the industrial company average of 15 times.
Boart was once a company with a billion-dollar-plus market capitalisation, but is nowfirmly entrenched at the small end. It recently reported a half year loss of $329m, whichreflected asset write offs of almost $300m. Its shares traded at above $2 at the start of theyear, and now, at 57c, its market cap now is just over $250m.
Why is Hughes Drilling, with its sub $50m market cap, any different? For one thing,Hughes is making profits, and based on its forecast earnings, we put the stock on a PE of 3times. It is also paying down debt at the rate of knots because its cash flow is strong (lastyear operating cash flows were just under $8m) and in March it raised $18.5m in equity at32 cents a share. After its next acquisition it will have net debt of just under $40m, whichmeans it has a debt to EBIT multiple of below 2 times, which we view as very comfortable (3times and above we start to worry).
Meanwhile, Boart isn’t forecast to make a profit this year either. This is a long way fromthe combined profits after tax of $311m it made between 2010 and 2013. Last year Boartwas trading on a PE of 15 plus, when its earnings were boosted by exploration activity and“greenfield”, or new operations. When commodities prices are high and going higher, drillingprofits are supercharged. But when it goes the other way, it is akin to a famine.
HugHES iS EXpoSED To pRoDuCTion, noT EXploRATion
In contrast Hughes Drilling has been concentrating on the less sexy area of production. Whilethe coal companies are cutting back on exploration, it costs them money if they’re not inproduction, and they still have contracts to fulfil.
Hughes is capitalising on the growing demand for coal as resources transitions frombeing a discovery game to being one based on volume. In coal there are two types: thermalis predominantly used for power stations such as Victoria’s Loy Yang, while the higher valuedmetallurgical is used for manufacturing steel. In fiscal 2013 Australian production of bothwas about 400 million tonnes of coal, and this is forecast to increase to 700 million tonnesby fiscal 2017.
loW pRiCE RiSK
Hughes is a small company whose growth and risk profile it could be said is climbing. It hasmade $16m worth of acquisitions in the past six months, which extends its drilling servicesoperations into Western Australia with the acquisition of JSW. More importantly, it meansHughes Drilling is now a US based manufacturer of drilling equipment, which intends to sellits product around the world, from Indonesia, to Africa, to South America.
There is big risk, but trading on a PE of 3 times, Radar would have to say that you’re notpaying much for a drilling company which is rapidly becoming a global player.

WHY WE liKE iT
Trading on a PE of 3 times, this juniordrilling company is not priced for thegrowth path it is currently on. Viaacquisitions, Hughes has expanded intodrill manufacturing, which gives it a costadvantage over competitors, as well asanother avenue for earnings. It is alsoexpanding into West Australia. Unlike highprofile failures such as Boart Longyear, thiscompany’s clients are not explorers butproducers, which is where the money is.
WHAT’S nEW?
Its fiscal 2013 profits were underwhelmingdue to low usage of its delineation rigs –used to extend coal pits. Its net profit wasstill 23% up on last year to $10.4m due tothe success it is having with blast hole, orproduction, rigs – used from the start ofthe mining process. Now that the companyis expanding into West Australia it willhave over 60 production rigs. In March, itraised $18.5m at 32c a share to purchasenew drill rigs as well as a US based drillmanufacturer, Reichdrill.

[Huang Chung]

Excellent work Steve.

I'll let them know you've posted it in full :)

[steve fleming]

JSW deal about to be done.

will be very interested to see the update presentation and see where earnings are headed for FY14 on the back of the Reichdrill and now JSW acquisitions.

In any event, feel a lot more comfortable holding this stock given the "service, sector, geographic and commodity expansion" as stated in the release that the acquisitions provide.

Hopefully it will no longer be tainted as much with negative perceptions around coal, notwithstanding that coal output is actually increasing rapidly, and is forecast to continue to increase into the foreseeable future.

[Joshuatree]

Cheers Steve.Slow burning fuse is HDX. So enjoyable being set early and watching the inexorable unstoppable momentum which I'm confident will burst out into the investor world like a short fuse starshell on the blackest of nights.:scared::t_up:

[percy]

Cheers Steve.Slow burning fuse is HDX. So enjoyable being set early and watching the inexorable unstoppable momentum which I'm confident will burst out into the investor world like a short fuse starshell on the blackest of nights.:scared::t_up:

What a truly magnificent post.!

[steve fleming]

130m revenue @ say 30% EBITDA (FY13 was 36.3%, but expect margins to fall as the REichdrill and Agencies % of revenues increase) = say $40m EBITDA

EV per Presentation = $107m

So it is trading on 2.5x EBITDA.

Net debt = $40m so gearing is actually not too bad at 1x EBITDA.

The business is doing some very very clever things.

Hidden away towards the back of the preso was a very important detail:

"Diversity of service/product offering is winning new contracts. Hughes has won contracts in FY13 by offering existing and
new customers a variety of drilling solutions including:
_ Traditional contract drilling services;
_ Sale/supply of drill rig to mine owner operator, with a service and supply of drill consumables contract through Express Hydraulics; and
_ A hybrid of contract drilling and direct sale of drill rig, with a buy price after a period of time."

Being now able to provide these diverse range of offerings provides (as manufacturer, Express Hydraulics offering, and contract driller) gives Hughes a real competitive advantage in terms of tendering.

[Huang Chung]

Really enjoyed yesterday's presentation.

Think it went a long way in demonstrating HDX is a credible public company, and not some rinky dink little outfit better suited in private hands.

http://stocknessmonster.com/news-item?S=HDX&E=ASX&N=759596

[amalgam]

I have read most of the very informative posts on HDX over the last year

I would like to thank you guys for all the research....this is where Sharetrader is so good. Valuable information & thoughts on shares below the brokers normal radar

Thanks

[steve fleming]

Really enjoyed yesterday's presentation.

Think it went a long way in demonstrating HDX is a credible public company, and not some rinky dink little outfit better suited in private hands.

http://stocknessmonster.com/news-item?S=HDX&E=ASX&N=759596

Yes there was a lot of interesting information about the business and its future.

To me, I just find what they have done over the past year really interesting from a business strategy perspective as to how they have mitigated the risks of the business. They have secured one of their key competitive advantages (by purchasing Reichdrill); leveraged this competitive advantage (driving global sales of REichdrill) and now have diversified their revenue stream across sectors, geography and commodity.

HDX currently have a 46% market share of the NSW/QLD coal market. THe next largest has 8%, Ausdrill has 4% and then there is a huge amount of small private mum & dad companies. As these contracts come up for renewal, you would think that HDX is extremely well placed to acquire additional market share as there is no way the smaller companies can provide the diversified offerings that HDX provide. And that is just the existing market. In addition, there is a whole lot more supply of coal coming on the market (the latest ABARE forecasts just released forecast 5.3% annual production growth in met coal and 8.8% growth in thermal coal through to 2017/2018 which HDX has the opportunity to contract to.

On the iron ore side, ABARE forecast 10.2% annual production growth to 2018. HDX (JSW) already contract to the 3 majors (FMG, BHP, RIO) so you would think they can grab some more contracts with them as they bring on more supply.

So HDX, which now manufactures drills, supplies the labour, fluids, etc, operates the drills, does the repairs and maintenance; is well placed to share in this production ramp up, and the so called "mining maintenance boom", now that the mining investment boom has ended.

However, countering this is a more general, high level perception in the market that anything coal is dead, and anything mining services is dead. This is a real headwind that HDX has to battle, but hopefully they are able to over time better educate the market on their story.

[Joshuatree]

http://www.thebull.com.au/articles/a/41678-coal-industry-intrigue-continues.html

Last two lines"there are no substitutes for it; we are no closer to finding an abundance of gas or alternative energies to substitute coal"

Looking forward to when alternatives are found but in the meantime this current climate is fertile ground for HDX to thrive whilist others whither. When that applies to s/p appreciation ; well cant be to too far away imo.

[Corporate]

Has anyone seen any guidance or even historic figures for JSW's EBITDA and NPAT?

Cheers,
C

[steve fleming]

Report from earlier this week, despite ASL and SWK downgrades interesting to note “Hughes is seeing strong growth for production drilling services”


------------
Hughes Drilling [HDX:AU], an Australian drilling services company to the resources sector, will consider further blast hole drilling acquisitions in an effort to boost market share, said Chairman Robert Hackett.

Despite the volatility in the mining services sector, Hackett noted that Hughes is seeing strong growth for production drilling services, as prospects for mines in production stages remain positive.

The Yatala, Queensland-based Hughes, would be interested in targets based in Australia’s east coast where it has its main operations, or those that are in geographies where it may not have sufficient presence, he said. Hackett noted that it would make sense to acquire the number two or three competitor in the market to increase the company’s size and profitability.

Its acquisition strategy is geared towards growing to a size that would attract more institutional and retail investors into its register.

Hughes is in the process of integrating its August acquisition of drilling contractor JWS Australia for AUD 24.4m including debt. The acquisition has given Hughes reach into the northwest Western Australia market, adding 24 specialist rigs, 140 employees and additional turnover of AUD 30.6m.

Hackett also noted that Hughes will also be able to leverage JWS’s capability in delineation services, and will fold in its own delineation business into JWS. In March this year, Hackett told this news service it could consider divesting its delineation business as it is non-core.

The company has no specific deal value for acquisitions but said they would be smaller bolt-ons, he continued. These would be funded internally and through debt facilities, or equity if needed. Hughes’ primary financier is Westpac.

Hughes has under 50% of market share in production drilling, its competitor privately held Coldwell Drilling has 8%, and Ausdrill has 4.1% he said citing research reports.

[Entrep]

Trading not looking good for the half yearly

[steve fleming]

Interesting to see Intelligent Investor announce a 6.4% holding this afternoon

II were the purchasers of the two large crossings a couple of days ago, and in October.

Steve Johnson doesn't get it right all the time, but he has a pretty good eye for deep value situations, and a throrough research approach.

Looking forward to the half year report which, in the absence of any other Management advice to the contrary, should show a nice continuation of growth.

[steve fleming]

Interesting to see Intelligent Investor announce a 6.4% holding this afternoon

II were the purchasers of the two large crossings a couple of days ago, and in October.

Steve Johnson doesn't get it right all the time, but he has a pretty good eye for deep value situations, and a throrough research approach.

Looking forward to the half year report which, in the absence of any other Management advice to the contrary, should show a nice continuation of growth.


from their DEC 13 Report.....now clear HDX is one they were not keen to disclose

http://www.iifunds.com.au/sites/default/files/report/IIF_VAL_INT_QR_DEC_13_0.pdf


"Other than Forge, we’re not yet ready to disclose specificideas because we are still buying. But we’re happy tooutline a couple of themes of interest.

Firstly, productionin mining, in contrast to investment, continues to hitrecord highs thanks to the investments of the past decade.Companies that provide production critical services, whichcan’t be easily deferred, and aren’t vulnerable to newcompetition from other work-starved contractors movingin on their dirt, look prospective. For companies in thisadvantageous position, the supply of work is still strongand margins aren’t under as much pressure.


Secondly, some of these beaten down mining servicesbusinesses can be purchased for significantly less than nettangible assets. This can be attractive, particularly thosewhere the assets are liquid, or in the case of plant andequipment, of such short life such that the chances ofprolonged industry oversupply of the asset is minimised.Such a position should protect margins through adownturn as the company involved, and its competitors,have the option of reducing their assets bases, throughliquidation or natural depreciation, if adequate returnsare not generated. This helps keep margins healthy andprovides an addition level of protection for investors,because free cash flow can be generated either throughongoing operations or the wind-down of activities. "

[steve fleming]

By my calcs, the HDX position equates to about a 5% holding in the II Value Fund (separate to the II Wholesale Fund's holding)

This would put it in the top 5 holdings of the fund, so a pretty big bet on HDX by Steve Johnson.

[Joshuatree]

Nice pickup Steve . I can see HDX turning the mkt weighing machine into a catapult.

[macduffy]

An interesting post, steve (#90) - and thanks for the link to the II report.

I hold a few HDX, a legacy of investment in the quaintly named Everyday Mining Services.

:mellow:

[FarmerGeorge]

Glad to see some interest here. Have been increasing holding at under 30c but it's tough going when the whole world seems against mining services regardless of the specifics.

[steve fleming]

Coal freight company Aurizon (AZJ) is at all time highs on the back of strong coal production, together with a very mild start to the QLD wet season should be positives for HDX

http://stocknessmonster.com/news-item?S=AZJ&E=ASX&N=779053

Coal:



December2013 quarter volumes of 56.2mt were a new record for Aurizon and represent growth of 11% compared to the previous corresponding period (pcp)
Queensland volumes increased 9% compared to the pcp, with a major customer operating under a legacy contract contributing a significant portion of the volume growth
NSW volumes increased18% compared to the pcp with record volumes railed for the month of December
NetTonneKilometre(NTK)growthof14%reflects growth for longer haul contracts including new volumes in NSW from Whitehaven in the Gunnedah Basin and strong volumes in the Blackwater and Goonyella corridors in Queensland

[stoploss]

Hi Steve, see any negatives from this re the coal market ...??

http://www.bloomberg.com/news/2014-01-24/china-bank-regulator-said-to-issue-alert-on-loans-to-coal-miners.html

[Huang Chung]

I would see it as a positive for the efficient Aussie coal miners.

Same with iron ore. A lot of high cost Chinese product that probably will fade away as the worm turns.

[steve fleming]

$4.5m NPAT for the half, for what was quite a transformational period, bedding down two acquisitions, and high mobilisation costs of JWS, is a pretty good effort.

Seem pretty positive with how JWS is going, with some good wins with FMG.

Core coal drilling seems very positive as well, with margins surprisingly slightly increasing : "Ongoing growth is expected to be high single digit to low double digit. It is expected thatthe high underlying EBITDA margins will be maintained (1H14 41.3%, 2H13 41.2% and 1H13 41.2%). "

Its just the delineation drilling where profitability is an issue, and hopefully JWS can assist with that.

With a full second half, ramped up JWS, should be able to do $10m to $12m NPAT - so on a PE of 5x with nice growth prospects

[Joshuatree]

HDX npat $4,521,000 down 17.9%
revenue $39,096 million up 62.7%
npat margin 11.6% 2012 22.6%
negative cash-flow from delineation drilling

production blast hole drilling an increase 41.3% to npat $6.4mill underlying profit

currently monthly debt repayments are $1.8million (peaked at $1.9 mill) The next 12 months will see the debt repayment profile and consequently the total debt profile for Hughes changing significantly . Good charts show monthly payments for each entity.

Mkt Cap re $55 million

[Joshuatree]

Yep HDX have done well in a super tough sector , am relieved:mellow:

[steve fleming]

Yep HDX have done well in a super tough sector , am relieved:mellow:

Yeah revenue and margins from their core coal business actually improved!!

It was their non core business and the JWS acquisition that bought down profitability (in the short term)

JWS looks like it will now have a big second half which will restore NPBT margins

[steve fleming]

HDX forecast FY14 revenues of $130m....even at NPAT margin of 12% that generates approx $15m NPAT (no tax)

[Joshuatree]

WOW ;...:t_up:CHEERS

[Joshuatree]

At a loss to see no int since the result . Price is dead in the water on little vol.

[DarkHorse]

http://www.couriermail.com.au/business/queensland-coal-mines-threatened-by-a-demand-squeeze-in-china/story-fnihsps3-1226863675649
How do you see these cut backs in Australian production affecting HDX Steve and JT?

[Joshuatree]

Dunno but coal will keep pumping out and HDX is the go to company if you want to reduce costs(being a lowest cost production blast driller etc) anyway so they may get more contracts!!. I didn't see a statement actually saying a cutback in production. Its in the bottom drawer for me until next results; they will decide whether we've backed a good horse here. Sometimes just too much dust and chaff in the noise out there on a day to day basis. Reich drill doing well in the USA ,just one division(Hughes Delin) that could improve to a more positive position. Back in the hammock with a quick kick to get the swing going.

[DarkHorse]

Good points. I know the main issue for coal is price - which could as you say even benefit HDX, but eventually might total output fall as production becomes uneconomic?
From link above: "The blow out in wages and prices has forced significant closures and the loss of about 8000 jobs in the Queensland coal industry."
How competitive is the Australian industry?

[Corporate]

The biggest issue I have with HDX is the lack of communication !

[macduffy]

The biggest issue I have with HDX is the lack of communication !

Indeed!

Has anyone been able to access the Investor Briefing of 6 March which appears in the ASX Announcements list?

[Joshuatree]

How about if we all email the company for this (i have) http://www.hughesdrilling.com.au/contact

Maybe it will motivate them to pull finger and put it on their empty website. A good summary of the briefing is on H/C. Management saying $100 mill rev doable for the year. Its all on the 2nd half. Lumpy Gravy hopefully:)

[Joshuatree]

PDF (http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01515789) YAY! an update from HDX today and it looks Great.

Major Reichdrills/Express hydraulics rig supply contracts signed
8 rigs supply contract into new mkt in AFRICA

Contract extensions for two blast drilling ops

Express hydraulis has won contract to supply up to 7 c700 rigs to a major open cut coal mine in the Hunter valley etc etc

First water boring contract for Sirius.

Plenty of shares avail @ 23c

New distrutors in new territories for Reichdrill

[Okebw]

I've been keeping an eye on this one for a wee while.
Picked up a small holding (10K) to start with and intend to add to if the next quarterly report looks good

[Joshuatree]

I resist averaging down on stocks but today i can't:)

[percy]

I resist averaging down on stocks but today i can't:)

I nearly joined you.
Then I thought ,what would KW say?, and decided against it.!!!
lol.

[NZSilver]

Madness! - I remember buying these at 30+ cents then selling them to free up some cash, since then the price has got lower and lower while the company grows -
I've been sitting sideline for months but after that update I'm in with a small holding. Fundamentally good value but still a mining services company so negative sentiment - hopefully this changes. Maybe paying a div later this year???

[percy]

Well I thought it would be along those lines !!!! lol.

[OutToLunch]

Nice update. Strong progress on several fronts, with the exception of Hughes Delineation Drilling (not mentioned, my interpretation is that this div is still struggling), but a very positive picture overall. Looks like REICHDrill has been a successful acquisition and a big step forward for the group as a whole.

I am attracted by the very low P/E this stock trades on (EPS of 5.43 to give a trailing P/E of 4.14) with significant potential for improvements from this level. Hughes have stated an intention to start paying dividends once they have paid down their debt from the REICHDrill acquisition which if I recall correctly will be as early as next year. We could potentially see an annual dividend of 2 or 3 cents a share, would we not?

[Joshuatree]

Cheers otl sounds reasonable ,the div. KW and percy check back every now and then because i think common sense with HDX tells me that in a really out of favour sector of the mkt there can be diamonds in the rough and thats what HDX is; thrown out with the bathwater etc etc. Mkt too scared to even look at it very sheepy imo but hey thats what flocks do :)

Ive emailed PIE Funds re this little gem. But hey DYOR research folks and treat all of us with caution newbies and regulars esp the ones that have a know it all, trust me,do as i say; and shades LOL.

[noodles]

I looked at these back in late 2012 because they were cheap. They had negative cashflows then. I notice their H1 NPAT has not changed since then. Their cashflows are negative after buying equipment.

I can't see them paying dividends with the current financial situation.

[drswag]

Ive emailed PIE Funds re this little gem. But hey DYOR research folks and treat all of us with caution newbies and regulars esp the ones that have a know it all, trust me,do as i say; and shades LOL.

Yes please keep us updated \:)/ the potential comments

[OutToLunch]

I looked at these back in late 2012 because they were cheap. They had negative cashflows then. I notice their H1 NPAT has not changed since then. Their cashflows are negative after buying equipment.

I can't see them paying dividends with the current financial situation.

Correct. But cashflows are expected to improve strongly in the medium term as debt is paid down as scheduled to occur over the next year or two. Also, fleet growth relative to company growth is expected to decrease which will mean less cashflow needed, relatively speaking, for future fleet purchases. HDX have stated an intention to subsequently turn their attention to dividend payments.

This is covered in their latest statement of accounts, see pp. 8-10.

[NZSilver]

another good contract win today

[Okebw]

Awesome wee jump for a 2 day holding.
Did anyone happen to listen in to the investor briefing this morning/afternoon?

[NZSilver]

Ive emailed PIE Funds re this little gem. But hey DYOR research folks and treat all of us with caution newbies and regulars esp the ones that have a know it all, trust me,do as i say; and shades LOL.

Some bigger volumes going through today.... - how well do you know these guys JT?

[Joshuatree]

Do you mean the investor briefing in march? . I emailed them asking to make it avail , no response as usual. Im hoping the change of chairman will improve the culture of communication with us. Great new contract alright silver with FMG.
Hey percy and KW HDX up 11% today here averaging down working atp:). Silver they've grown aggressively in quite a short time are best in breed re PRODUCTION blast drillers for coal and reichDrill etc are ramping up nicely. Bedding in and paying off debt now for divs not that far away. I hope they have a break from buying businesses.

[Corporate]

Tax is one thing to be mindful when looking at HDX going forward. Up until now HDX has had enough tax losses to offset any taxable profits, however, this is set to chance and by my calculations HDX will become tax paying in the next 6 months. Both impacting NPAT and free cash flow.

[NZSilver]

Cheers Corporate - interesting, can you give more info on how big effect will this have on HDX?

[percy]

Do you mean the investor briefing in march? . I emailed them asking to make it avail , no response as usual. Im hoping the change of chairman will improve the culture of communication with us. Great new contract alright silver with FMG.
Hey percy and KW HDX up 11% today here averaging down working atp:). Silver they've grown aggressively in quite a short time are best in breed re PRODUCTION blast drillers for coal and reichDrill etc are ramping up nicely. Bedding in and paying off debt now for divs not that far away. I hope they have a break from buying businesses.

Yes saw HDX was well up.Well done.
I have grown very cautious of late.Just happy to bide my time!

[NZSilver]

Yes saw HDX was well up.Well done.
I have grown very cautious of late.Just happy to bide my time!

Yeh agree with you Percy on being cautious - all you have to do is look at a chart of any capital market ie Nasdaq and you realise things are topy - this gave me a reality check with all the hype.

Trying to find steals has become difficult with high share valuations - would be interested to know others thoughts on any growth gems. (We need another Capitol health / Azure)

Hard to make a call on HDX - it fits interms of good value for money;

P/E ratio 4ish? But not much liquidity and another unloved mining service company which relies on miners for buisness, and they are having rough times at the moment.

Will be interesting to see how it plays out over the next 1-2 years - but worth a dabble I reckon..

[percy]

Value I am finding hard to find.Far too much goodwill and to many intangibles on small cap companies' balance sheets.Take those out and there is very little in the way of shareholder's funds or equity.I have sold out of AZV,CAJ,CTE,EPD,IIN,and SOM.
Over the past 6 months I have brought AEU,AKG,GLH,and KME.Have either held or added to CCV,EBT,and MNF.
In NZ I have brought ZEL,MELCA,GNE,and have added to my EBO,HNZ,PGW,PAZ[unlisted market]and TruTest[via the company].
I am watching all the companies I have sold.Most of their PEs are a lot higher than their growth rate,so I will sit on the sidelines. At present only one I have thought of adding to is HDX,but is really a mater of the uptrend being confirmed.
Maybe I should be adding to GLH and KME,but have a reasonable holding in both,and letting my profits run on these two.I did buy into RFT as a spec.[could be fun]
In NZ, FIN looks interesting,but it is impossible to buy.

[NZSilver]

Cheers Percy, agree CCV looks good (bought a few weeks ago), I missed KME, still hold CAJ and added a few on the recent dip (I think it will have a good results and look more fairly priced then), MBE for the techy side, just bought HDX (will look to add more), thought BYL looks good after recent contract. small CZD and ADO specs, Holding Sum and Peb on the nzx, have a few heartland but would like to buy more. HDX looks solid.

O yeh got some token genesis too

[percy]

I think you are right thinking CAJ will have a good result.
MBE I never understood,so stayed away.
CCV does look good.
CZD and ADO are new to me,so thanks.
I don't hold PEB,but respect the people who do.

[noodles]

CCV does look good.

Percy, A close alternative to CCV is MNY. I have heard the CEO speak. He is very impressive. The business seems simpler than CCV. It is purely lending in Australia. Motor Vehicles and short term loans to credit impaired.

[percy]

Percy, A close alternative to CCV is MNY. I have heard the CEO speak. He is very impressive. The business seems simpler than CCV. It is purely lending in Australia. Motor Vehicles and short term loans to credit impaired.

MNY. Going from it's chart it has been an absolute cracker. Thanks.

[Joshuatree]

[QUOTE=. - how well do you know these guys JT?[/QUOTE]

Hi NZSilver I rate them highly as fund managers and own units in 3 funds(performance % on PIE thread). Their latest newsletter is inviting us to be more involved re share ideas etc.

[NZSilver]

cheers JT, yeh - I read their newsletters after I saw how they have been performing - havnt invested in them though. From their performave it look like they know their stuff!

[NZSilver]

Thanks for that KW - worrying, hopefully wins>losses (+possible production increases from certain mines as coal prices drop). Will know soon enough.... well in a few months

[Joshuatree]

Thanks Corp and KW for your very good points. S/P back to 23c . Its a waiting game herein for full year results. cheers JT

[Corporate]

Thanks Corp and KW for your very good points. S/P back to 23c . Its a waiting game herein for full year results. cheers JT

Good approach JT. I keen await the annual result as well, it should give a good indication on a number of fronts.

[drswag]

Investor Presentation
http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01518652

[macduffy]

A competitor - Downer EDI - loses a BHP Queensland coal contract.

http://www.theage.com.au/business/mining-and-resources/downer-edi-loses-360m-bhp-contract-20140611-39wcy.html

[Joshuatree]

Yes for prestripping tho not production drilling.In theory HDX should do well in this climate of miners reducing costs. But sentiment and mkt not differentiating atp.

[Joshuatree]

Quote:Ive emailed PIE Funds re this little gem. But hey DYOR research folks and treat all of us with caution newbies and regulars esp the ones that have a know it all, trust me,do as i say; and shades LOL.[/QUOTE] .

I did get response (late May early June)and they don't like the M/S or Drill sector(other than oil and gas,they hold TTN) or anything to do with coal. Typical herd sentiment atm. Hope Im right ,for a contrary change.S/P doesn't agree with my investment atp.

[NZSilver]

finally something to get things moving

[Joshuatree]

Yeah rang him the other day and he said two contracts had been done but details couldn't be released to the mkt atp.Slight downside ,only 6 of the 8 drills have gone to Africa atp.

[Joshuatree]

Up 25%to 20c settling re 19.5c atm.Great to see some progress alright NZS.

[JBmurc]

I see they have just had contract extension with RMS ...good for both companies IMHO

[ah13]

Today's results seem way off the mark compared to the estimates they gave in their May 2014 presentation.

Interested to hear what Steve Fleming, Joshuatree and others think of results announced today.

Thanks

[Joshuatree]

Im disappointed and my faith looks a little blind. Am reviewing whether to hang for in another season . Rev dropping to $91 million and guidance was re $105 mill, i guess they are not selling widgets or something entirely predictable in this beaten up drilling sector.Results are still good and underlying profit of $7 mill, with mkt cap of $37.5 mill.

Blast drilling not as strong/defensive as i believed; while west coast had slower than expected startups but all contracts now fully deployed so better days ahead.
Delineation Drilling loss of $3.7 mill was a big drag on performance "all employees have been absorbed into the Production drilling Division and very few cash costs going forward"

Reich drill has little to show despite record levels of enquiries commitments are being held off.
Debt reduced $7 mill and dropping re $1.8 mill a month.

Arguably the best performing driller and my contrarian buy has to be for the longer timeframe unless i can use the funds better for another op.

[steve fleming]

Today's results seem way off the mark compared to the estimates they gave in their May 2014 presentation.

Interested to hear what Steve Fleming, Joshuatree and others think of results announced today.

Thanks

Have to say KW was right with this one - HDX is struggling against some very tough headwinds.

I no longer hold, and the report was not good, but the positives are they were able to maintain reasonable profitability with a far more diversified revenue base (up 82%, with coal drilling now only being 47% of total revenues).

Forager Funds (Steve Johnson) - Intelligent investor still seem keen on it though.

[NZSilver]

mmmmm - hard to say where these guys will go - should i fold? - whats others thoughts? it seems it is stable underlying profit, is reichdrill likely to sell more rigs with its recent expansion into several other markets? more inclined to hold and see what happens.

[Corporate]

I once held HDX and other mining service companies and they are just to much like hard work. The earnings are so unpredictable. I don't bother anymore.

[NZSilver]

Annual out - always nice to see a clear easy to read document. - pitty profitability and margins have dropped, hopefully it pulls through but good lesson learnt re mining services companies in the current enviroment and buying into a down trend. Cheers.

[Chaowee88]

Annual out - always nice to see a clear easy to read document. - pitty profitability and margins have dropped, hopefully it pulls through but good lesson learnt re mining services companies in the current enviroment and buying into a down trend. Cheers.

12C now... So much pain

[Joshuatree]

NPAT up re 45% to $6.5 mill for half year and margins up too.
But STILL spending on new Hire Purchase division !!! Total liabilities $73 mill
share price up 27% to 14c atp.

Mkt cap re $29 million

[Joshuatree]

Rev $107.5 mill
NPAT $8.2 mill for FY15
Underlying profit $10.8 mill
Debt still high re 42.3%
Share price up 1c to 15c mkt cap re $28 million

[Joshuatree]

14c atm terrible spread, agree ;hell in a hand basket (and maybe back ) sorta stock. Far better quality out there.But either you back your convictions and average down and maybe multi bag later ;COF type play or get your money back and miss many other higher quality opps with way less risk.

[Joshuatree]

Famous last words (not). voluntary admin. Its just one more time (bad decision) or one less time hopefully :mellow:

[percy]

Famous last words (not). voluntary admin. Its just one more time (bad decision) or one less time hopefully :mellow:

Unfortunatly you are not alone.!
Luckily I only brought a small parcel, with the view of adding to it,which I never did.

[Joshuatree]

. A REVIVAL !!!? :eek2:Recapitalisation and huge share consolidation 35 to 1
Download Document 1.46MB (https://hotcopper.com.au/documentembed?id=uOMxKKzFkiWRTLKhOROKAxjvSDYL4wi8y BL2v%2F9957FiGug%3D)

[macduffy]

. A REVIVAL !!!? :eek2:Recapitalisation and huge share consolidation 35 to 1
Download Document 1.46MB (https://hotcopper.com.au/documentembed?id=uOMxKKzFkiWRTLKhOROKAxjvSDYL4wi8y BL2v%2F9957FiGug%3D)

My small parcel becomes a very small parcel! Not that it's worth anything much, either way!

:mellow: