In March, we changed tack on our buy call for ADES international (ADES) to a sell, as it emerged that net debt had climbed to 3.3 times annualised second-half cash profits (Ebitda). That ratio remains unchanged if we double interim cash profits, up 138 per cent on the 2018 half-year, as net debt stood at $601m (£481m) at the period-end, an increase from $174m last time around.
The oil and gas driller’s net cash flow was equivalent to 95 per cent of operating profits, which is a positive sign, although you get a better idea of the rapid upscaling of the business and its potential pitfalls when you consider that finance costs cranked up to $57.4m, a near-fourfold increase and roughly equivalent to half-year operating profits.
Admittedly, half of the finance costs were attributable to loan fees and written-off pre-paid transaction costs, so the actual servicing fees would normally be lower. But leverage on this scale always presents a problem from a risk management perspective.
Analysts are guiding for full-year earnings of 190¢ a share, rising to 192¢ in 2020.
| ADES INTERNATIONAL (ADES) | ||||
| ORD PRICE: | 1,270¢ | MARKET VALUE: | $556m | |
| TOUCH: | 1,220-1,260¢ | 12-MONTH HIGH: | 1,500¢ | LOW: 1,190¢ |
| DIVIDEND YIELD: | NIL | PE RATIO: | 8 | |
| NET ASSET VALUE: | 986¢ | NET DEBT: | 136%* | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2018 (restated) | 79.7 | 19.1 | 43.0 | nil |
| 2019 | 220 | 16.3 | 25.0 | nil |
| % change | +176 | -15 | -42 | - |
| Ex-div: | n/a | |||
| Payment: | n/a | |||
| £1=$1.25. *Excludes lease liabilities of $13.3m. | ||||
