Capital Drilling Limited (LON:CAPD) has reported 28% of revenue growth for the twelve months ended December 31, driving a substantial improvement in earnings.
The drill services contractor reported US$24.3mln of earnings (EBITDA), up 86% from the US$13.1mln achieved in the preceding year, after revenues grew to US$119mln from US$93.3mln.
READ: Capital Drilling back in the money and ready to dig deep in 2018
It reported a net profit after tax of US$5.2mln, compared to a US$4.8mln loss in 2016.
Significantly, net operating cash flow improved by 109% to US$20.7mln and the company announced a final dividend of 1.2 cents per share – to be paid on May 28.
The company ended the year with some US$4.9mln of cash.
"Capital Drilling saw a return to profitability in 2017 as the company continued to drive down costs, extend long-term contracts, as well as secure additional long term contracts in the West Africa market,” said Jamie Boyton, Capital Drilling executive chairman.
Benefitting from improvement in mining industry
He added: “Capital Drilling has also benefited from the gradual improvement in market conditions in the mining sector, driving another year of strong revenue growth.”
“Metals prices improved over 2017 and there was a strong increase in capital markets activity, which has translated into increased budgets from mining and exploration companies.”
Boyton also highlighted that the company entered 2018 in “a strong position”, despite the challenges being faced by Tanzania, and it is, meanwhile, excited to be increasing its presence in the key West African market for drill services.
Analyst upbeat reaction to results
FinnCap analyst David Buxton described the results as encouraging, highlighting that pre-tax profit was better than forecast.
Similarly, the dividend was also better than expected and it was underpinned by strong operational cash flow.
Buxton, in a note, said: “2017 was a year of transition. Existing production contracts have performed well, while rigs are being moved to West Africa to service new production contracts. Focus on operational efficiencies helped boost margins to 11.4%.”
The analyst added that market sentiment remains focused on Tanzanian issues, which remain unresolved, but, he said investors should also recognise the strong improvement in Capital Drilling’s operational performance.
FinnCap retains an 85p price target, which suggests very significant upside to the current price of 36p.