DDH1 Drilling is a relatively new listing on the ASX.
They drill mining holes for others so they are dependent on the various mining industries.
An increasing fleet size, utilisation and earnings rate have seen revenues and profits grow. They pay a dividend.
They are already number 1 in Australia. Are they going to be continue to be an aggregator in the drilling industry?
Investor centre here: https://ddh1drilling.com.au/investors/
Chart looks awful: https://nz.finance.yahoo.com/quote/DDH.AX?p=DDH.AX
But at 67c the P/E ratio is under 4.
The IRD website has DDH being exempt from the FIF tax rules for the year ended March 2022.
They have buy-back now but not yet buy any back
Friend tell me about this company and I look at it and is good.
I hope buy some next time I have saved money.
I notice it is a relatively new listing, with a large founder % held. Always have to question why they were keen to get out. The exec team owns a pretty pitiful 3%, not even 15 million nzd. I note ROIC is very high at ~30%, are their services that difficult to reproduce? Can that be maintained? Definitely pretty compelling on valuation but why invest in this over something like Rio tinto, which is on a similar PE at the moment yet is arguably safer (better scale, geographic diversity etc).
From page 7 of the prospectus (https://ddh1drilling.com.au/wp-content/uploads/2021/03/DDH1-Limited-IPO-Prospectus-FINAL-web.pdf):
"The funds raised by this Offer, together with existing cash, will be used to pay down borrowings at Completion and provide Existing Shareholders with an opportunity to realise part of their investment in the Company. Additionally, an ASX listing will provide DDH1 with access to equity capital markets, give employees an increased opportunity to participate in the ownership of the Company and provide a liquid market for Shares. The Existing Shareholders will remain strong supporters of the Company and will hold approximately 60.2% of the Shares at Completion of the Offer."
As to why founders wanted to partially cash out - everyone has their reasons and most have some sort of exit strategy when setting up a business they can build to a certain level. I see this as being more like DGL rather than MFB.
You ask: "Are their services that difficult to replicate?" I suppose anyone could invest many millions of dollars in equipment to drill exploration and sample holes to depths of 3km all around Australia - but I don't see people queueing up to do it and the DDH customers appear to be "sticky". It is a job that requires experience given the enormous cost of getting it wrong, like losing drill heads etc many hundreds of metres underground.
Also, regarding investing in Rio Tinto instead of this - that argument could be applied to any other organisation. It is not an "OR" choice; "AND" is an option. FYI I see reported insider % for Rio currently sits at 0.00% per Yahoo so I'm not sure about the relevance of that point.....but yes I hear you in that "God is on the side of the big battalions". But it is nice to get in at the ground floor every now and then, i.e. greater risk / greater reward etc.
I reckon start a thread on Rio Tinto. Go for it.
Good points. Do you think that needing experienced staff acts as a kind of moat for this company? I like that they are not afraid to buy back stock, really advantageous for NZ investors with no capital gains tax.
Quote from: Plata on Jul 15, 2022, 10:56 AMGood points. Do you think that needing experienced staff acts as a kind of moat for this company? I like that they are not afraid to buy back stock, really advantageous for NZ investors with no capital gains tax.
Agreed but keep in mind "experience" is a two way street. Yes it it *can* be a moat but it can also be a constraint. Once staff are experienced they may be more valuable to someone else (e.g. in the USA or a competitor?) which potentially puts staff and cost pressures on DDH if they do not get it right. But also with experience comes doing the job once and doing it right....not necessarily so for those still learning. I am curious to know how DDH will go about retaining staff to hold onto that "experience" - I need to read up on this.
So "experience" could be a moat but I'm not sure that is enough. That said, I am aware of others in slightly different but highly technical areas (i.e. fibre optics) where cheap does not necessarily always get the job - the client wants it done once and done right where they know there won't be any issues. DDH have stated they are pursuing deeper drilling contracts that are highly technical.
Drilling is a relatively complex and dirty business that requires big bucks. But with the big bucks comes big capex and big R&M bills - there will need to be an ongoing cycle of reinvestment into equipment for DDH. I would not look at EBITDA for DDH given "D" will represent an ongoing cash outflow if the fleet capacity is to be maintained. So the cost of entry is a potential barrier to entry for competition - any sort of drilling rig is not cheap.
Then you need to get the rig to where it is needed. Most drilling is in WA, so there is a risk of smaller guys carving out a niche with older or less capable equipment in certain locations. That might work for some of the smaller exploratory miners, but not the big boys IMO. Page 40 of the prospectus talks about the competition - there are a number of smaller competitors with 10 or fewer rigs. And page 54 has examples of long term drilling contracts with some of the big boys like BHP, RT etc. DDH has a history of being an aggregator in the industry and I expect this will continue, like DGL.
Lastly, from their prospectus: "A significant portion of the drilling services business is dependent upon obtaining work through a competitive tender process. Despite DDH1's demonstrated ability to compete effectively in the markets in which it operates, the competitive nature of the industry means that there can be no assurance that DDH1 will be able to continue to compete successfully against current or future competition." So it is certainly not without risk.
I am curious to hear your thoughts.
Been looking into it a little more. Like that they have no debt. Seems to be on the low end of PE's for its industry/peers, even those of similar market cap. Surely a PE that low indicates that the market expects that this/next year will be as good as it gets for a while right? I'm sure some of it has to do with recession fears, top of economic cycle etc etc but is that all of it? Do you have any ideas as to why the market has this so lowly priced?
Could be. I'm no expert so I am also guessing. I figure it is indicative of the current soggy state of the market and possible recession/inflation fears. Without building a strawman argument I think fears of inflation may be misguided - any wage and fuel cost pressures should be passed on to clients, unless those long dated contracts are for a fixed price....maybe? DDH could also be unproven in the eyes of the market given it is new to the ASX. It may need to prove itself over a few half yearly results.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02545268-6A1101036?access_token=83ff96335c2d45a094df02a206a39ff4
Pretty decent update. I bought in on the way up today, hopefully FOMO doesn't catch me :o
A very nice update. The major points I like from this are the overseas expansion, the on charging of consumable costs to pass on the effects of inflation, the managed growth plans and the various revenue KPIs (fleet size, utilisation, daily rates etc) are all headed in the right direction. No apparent industry issues. I am curious to know more about the manufacturing capabilities of Swick - that could be a game changer for avoiding costs with fleet maintenance and expansion.
Yes was good spotting on your part Ferg that is for sure, if I had acted quicker I would have made 20% already :o. Only negative I could spot was the slight contraction in underlying ebitda margin, but I had already expected some contraction there. Sadly I bought in near the top today, another FOMO lesson learnt... not too worried though as even now the price looks pretty good.
Thanks Plata but someone else brought it to my attention. I simply did a bit of research on them and posted what I found. That person is active here and is free to out themselves if they want. I too noticed the reduced EBITDA % and per my skim read of the release I believe this was explained by DDH being caught between inflation affecting costs and fixed price contracts with customers, which they are addressing. I now wish I had bought more at recent lows but hindsight being 20/20 and all that. It is still relatively cheap according to traditional valuation metrics so I am happy to accumulate.
Yeah I think it is still pretty attractive. I mean only a few months ago directors were buying at higher than the current price, they clearly thought it was good buying then. Need to get a deeper understanding of the business before I commit further, pretty reluctant to deviate too far from my ETF portfolio focus... hurts too much being wrong ::)
DDH took over SWK.
Below I have copied part of page 5 of SWK's agm presentation of 5/11/2021.I accessed it vis www.stockmessmonster.com
https://stocknessmonster.com/announcements/swk.asx-6A1061178/
SWICK ENGINEERING
▪ Encouraging initial traction.
▪ Turning a cost centre into a profit centre has allowed a
refocus and Engineering is a more efficient internal and
external supplier.
▪ Growing demand for Swick's drills has led to the
manufacturing and sale of GenII rigs to the open market, as
a means for Swick to enter new regions.
▪ Ramped up the division in FY21 building the team.
▪ Early inbound demand with four GenII rigs sold to two
global drilling contractors for use in Canada and Tanzania.
Moelis TP 1.89
Bell Potter TP 1.48
Macquarie TP 1.50
Bit of a pull back today huh! Looks like my FOMO induced entry was an absolute balls up, lesson learnt I suppose. Thankfully didn't buy my full parcel in one go. What do we reckon, healthy pullback to start a new uptrend OR heading back down? I'm thinking low 0.70s could be decent buying given the buyback will likely support it from falling much further. An 8% buyback is a lot of ammunition to keep the price up especially with how low the free float is (unless of course the large holders decide to use it to sell down, which may be the real reason for the buyback).
Buyback looks like it has been suspended, black out period I assume? Looks like it is going to take a long time to use up all the buyback firepower at the current pace. Looking forward to some good results 8)
I agree - I too am looking forward to some good result. Yes there will be some daily ebbs and flows with the share price, which we *should* ignore. If the business is undervalued from a fundamental perspective and there are not too many headwinds, then I see price weakness as a good chance to continue accumulating. Unless I have missed something major I see this as low risk.
Edit: I see on HC it is thought the buybacks peaked at around 85c per share. I also see they have 65m shares coming off escrow 30 August. Maybe someone thinks they are getting ahead of the founders?
https://hotcopper.com.au/threads/ann-release-of-securities-from-voluntary-escrow.6906070/
https://thewest.com.au/business/mining/ddh1-slides-despite-record-results-c-8054008
The buyback seems to me making up a very large % of daily volume at the moment. For example, yesterday volume was ~1 million, the buyback was ~450k of that. Does it make sense to be this aggressive with the buyback? Are the share price gains being driven by this buyback, ie will reverse when it is over?
This just keeps going and going doesn't it! People piling in for the dividend or overzealous buyback?
A nice wee lift lately although I try not to ascribe meaning, or point to events, when it comes to daily share price movements. There are too many ebbs and flows. There were a number of shares that came out of escrow 30 August so the cynical part of me thought the buyback timing was not a coincidence.....but I'm speculating. The buyback provides a safety net of sorts; although it only provides comfort while the buyback programme is in place. But I still believe the fundamentals are there to support the current and a higher share price. I'm happy to be patient and hold.
The share buy back programme is still in place. The total number of shares bought under this programme up to 4 October 2022 is 10.8m. The buyback commenced late July '22 and per the 1 July announcement they are authorised to buy back 34.28m shares out of issued capital of ~427m shares. Hopefully other investors here managed to pick up a few at recent low prices although the NZD/AUD cross-rate of ~0.88 is not helpful.
https://nz.finance.yahoo.com/quote/DDH.AX?p=DDH.AX
A quick update since the last post.
New website for investor updates: https://ddh1.com.au/investors/
- CFO resigned back in November - seems like an amicable departure.
- DDH to add an additional 11 rigs this fiscal year (with 183 on hand at end of last year that is an additional 6% full year capacity before factoring in increased utilisation)
- No problems with employing staff and staff turnover is low
- Share buyback still progressing, just passed half way on the 34m shares able to be bought
- 20m of the 28m shares that came off escrow 31 August were sold 1 September
- Q1 revenues for FY23 are up 16.7% on last year and average revenue per rig up 4.3% YoY, unaudited EBITDA for Q1 up 9.5%
- Demand for battery minerals is driving drilling activity, and also clients are wanting deeper drilling
Happy holder with the recent pullback offering additional accumulation opportunities.
A Bell Potter 2023 pick:
DDH1 (DDH)
DDH should maintain positive
operating momentum from its Q1 FY23
performance as the company delivers
an expanding rig fleet into buoyant
production drilling demand over the
remainder of FY23. This outlook is
de-risked given DDH has already
contracted or received commitments
for the majority of its FY23 revenues
while customers are reporting longer
order books for drill rigs, more than
double standard order lengths. DDH
should also benefit from higher fleet
utilisation and charge-out rates
driven by ongoing strong demand for
drilling services and industry-wide rig
availability constraints.
Buy, Target Price au$1.44
WELL POSITIONED TO DELIVER
SUSTAINABLE RESULTS
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02628302-6A1135100?access_token=83ff96335c2d45a094df02a206a39ff4
Nice update. Onwards and upwards.
KW put up some TA posts explaining support versus resistance (https://stocktalk.co.nz/index.php?topic=178.msg6232#msg6232). I'm no TA but I'm guessing based on eye-balling the graph that somewhere around the $1 mark used to be a support level, and this may prove to be a resistance level. So despite the TP predictions of brokers, we could see some sideways tracking of the SP for some time, until there is an event or another announcement of sorts.
As I said previously, I think DDH will have to prove itself with a few half yearly results before the market re-rates the P/E ratio.
Happy holding. I'm done buying for now.
Even now the P/E looks pretty reasonable. Feeling pretty safe and sound with this one, seems they can't put a foot wrong so far. I think ignoring market conditions, if the next half is good it will have to go above a buck.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02637420-6A1138451?access_token=83ff96335c2d45a094df02a206a39ff4
A good result,strong out look and increased divie.
Could not ask for better.r
https://stockhead.com.au/resources/with-declining-resources-and-reserves-australias-biggest-driller-says-explorers-need-to-keep-splashing-the-cash/?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Friday+3+March+2023
You've got to admit, no guidance and poor trading in jan/feb is ever so slightly ominous. Everything else looked great, but that has clearly spooked a few into selling. I'm gonna hold on given the low valuation but still, spooky.
DH1 undervalued, well positioned for mining recovery
Broker MA Moelis has a target price on surface and underground drilling services provider DDH1 (ASX:DDH) of $1.23 (versus the current price of $0.84).
According to the broker, while there have been fewer domestic junior raising and IPOs this year, momentum suggests an improving trend into the remainder of CY23.
Deferral of some exploration programs among majors also suggest that drilling activity had been delayed to Q3.
DDH1's management has previously said that it anticipated increased demand for the remainder of the period, and into the first half of 2024.
MA Moelis believes DDH is well positioned to capitalise on any uptick in sentiment and recovery, as it has leading domestic operational scale and capability.
Another tailwind for the company is that gold has been enjoying strong price momentum in 2023.
"We hold the view macro and capital markets momentum appears to be on an improving trend into the remainder of CY24, which we think will translate to stronger demand and utilisation for DDH," said the note from MA Moelis.
Due to the current soft demand however, the broker says its price target on DDH has decreased to $1.23 (previously $1.35), but has maintained its Buy rating.
"We note DDH continues to trade at a significant, and undeserved, discount of 48% to its mining services peers."
Well that is underwhelming....
https://wcsecure.weblink.com.au/pdf/DDH/02679266.pdf
DDH shareholders to receive A12.4c per share plus 0.71 shares in Perenti (PRN) for each DDH share. Approximate values is A$1.01.
DDH was to be a cornerstone of my Australian shares.....I don't want PRN given it operates in Africa, has A$840m in debt and does not pay a dividend. Time will tell if bailing out is the right or wrong call but PRN does not tick my boxes. Whilst I have done well out of this, I didn't buy this for a quick buck.....I wanted a long term investment.
Oh well....time to find another cornerstone.
Yeah a bit naf, doesn't help PRN sinking like a stone on the news either...Surprising the cornerstone holders and management are keen on it given it was not that long ago these traded above the offer price. Makes me wonder if things are not going so well at the moment. Plus they reckon they can get 22 million in synergies in the first year, on a ~1.1 billion dollar group. Mostly coming from tax losses of Perenti. Jeez, why merge with an overleveraged loss making dog.
Am I crazy or has any mention of the merger been scrubbed from both DDH1 and PRN asx announcement pages?
Quote from: Plata on Jul 04, 2023, 06:47 PMAm I crazy or has any mention of the merger been scrubbed from both DDH1 and PRN asx announcement pages?
As much as I wish that were true, I am still seeing it here: https://ddh1.com.au/investors/
I was happily invested in DDH and I could see its prospects for growth and profits. Recent events have soured my opinion of the Directors - I wrote telling them as much. No reply.
My reasons for holding and/or accumulating no longer exist. Further, I am not enamoured with PRN...in particular it's debt levels and African exposure. I sold the last of my DDH shares today.
A quick buck was never my intention. Very disappointing, but I will happily deploy the funds somewhere safer.
Made no sense to me either.Sold for the same reasons you did.
[insert some pithy comment about lipstick and pigs here]
https://hotcopper.com.au/documentembed?id=uOMxKKzFkiWRTLKhOROKAxjvTDYL4gi5yhPxv%2FN997FiGug%3D
Disclosure: no longer hold
Emotionally it feels like this deal could never get over the line but it seems the market is sure it will. I'm so glad I sold out just before the Perenti DOG released its results, my God what luck. What an absolute heist and the thieves are draining the vault in broad daylight.