Debt soars at ADES International

That’s high, and still stands at 3.3 times if you annualise second-half profits, to better reflect the acquisitions’ cash generation. However, ADES has its own method. Apparently, net debt needs to be measured against both Ebitda from existing rigs and revenues for “newly acquired contracted rigs”, which are then annualised and multiplied by a 35 per cent Ebitda margin and a 90 per cent utilisation rate.

Such a massive adjustment might satisfy banking covenants, but for practical purposes it is impossible to verify. Indeed, the company would not provide us with the figures it used to calculate a “pro-forma” net debt to Ebitda ratio of 2.4, perhaps because this suggests Ebitda hit $177m, or 86 per cent of revenues, in 2018.

That’s confusing, not least because operating costs rose to $108m in the period. Far preferable would have been acknowledgement of the unflattering timing of these accounts from a debt ratio perspective, and a clear leverage ratio target for the end of 2019.

Analysts at Canaccord Genuity forecast adjusted earnings of $2.07 per share in 2019, rising to $2.38 in 2020.