Capital spreads its wings and profits

Capital (CAPD) ditched the ‘drilling’ from its name when it became clear its business was about to be much more than just holes. It is now the earthmoving contractor for Centamin’s (CEY) Sukari mine in Egypt and also has a new laboratory services job under its belt at the Barrick Gold (Can:ABX) mine Bulyanhulu in Tanzania. 

These new contracts come on top of its existing drilling work. The old and new sides of the business combined for a sales increase of 52 per cent on the first half of last year, hitting the “strongest half year performance” in its history, according to executive chairman Jamie Boyton. The interim payout of 1.2¢ a share is a third higher than last year. 

The precious metals miners have had a fairly weak 2021, even with the high gold and silver prices, as investors have sold off and sent prices down. Capital is a rarity in the industry for seeing its share price climb on a year-to-date basis. Its clients Centamin and Shanta Gold (SHG) are down a quarter in the same period, although Shanta’s decline is linked to a guidance cut last month. 

Capital has maintained its 2021 sales guidance at $200m-$210m, a 48 per cent increase on 2020 and a 74 per cent increase on 2019. This expansion has led to the company taking on new debt, with net borrowings climbing to $33m (£24m) as of 30 June from $5m net cash at the end of 2020. 

Consensus forecasts compiled by FactSet see full-year cash profits at $58m, up from $34m last year. 

Capital has invested in getting more long-term contracts and spreading its clientele across explorers - who often run out of cash when times get tough - and more resilient companies already in production. Buy. 

Last IC View: Buy, 30p, 20 Mar 2020