Our opinion on the current state of MASTDRILL(MDI)
Master Drilling (MDI) is a South African company specializing in drilling exploration and other holes for the mining industry, and it has diversified into drilling for hydro-electrical projects and construction. The company has moved away from the South African mining industry and now provides services in North and South America, Europe, and elsewhere. It has developed a new horizontal drilling technology, or tunnel boring machine, which could revolutionize the mining industry worldwide. This technology enables the drilling of horizontal tunnels or tunnels that are inclined up or down by 12 degrees. It is much quicker and cheaper than the traditional blast and clear methods currently in use. At the moment, it requires three operators, but the company is working on a completely automated remote-controlled version.
In its results for the year to 31st December 2023, the company reported revenue up 7.2% in dollars and headline earnings per share (HEPS) up 15.1% in rands. The company said, "Stable order book of USD288.3 million - Healthy pipeline of USD535.3 million - Dividend of 52.5 cents per share in ZAR terms declared, an increase from the 47.5 cents per share in 2022 - Cash generated from operating activities increased by 42.0% from USD25.0 million to USD35.5 million." In a trading statement for the six months to 30th June 2024, the company estimated that HEPS (in rands) would be between 1.9% lower and 18.1% higher than in the previous period. The company said, "These lower EPS for the current period were largely the result of non-cash adjustments deemed appropriate in the interim results."
It is now trading at about 50% of its net asset value (NAV) and on a price:earnings (P:E) multiple of 4.22, which looks like good value. We regard the company's horizontal drilling technology as a potentially disruptive technology in the mining industry, which extends the life of some mines and makes others viable again. So, while this is a risky share because it is linked to the commodities markets, it has the potential to offer strong growth because of the new technologies it has that could revolutionize the mining industry. In our view, this is an interesting company with the potential to perform well as its new horizontal boring machine gains traction.
In its results for the year to 31st December 2023, the company reported revenue up 7.2% in dollars and headline earnings per share (HEPS) up 15.1% in rands. The company said, "Stable order book of USD288.3 million - Healthy pipeline of USD535.3 million - Dividend of 52.5 cents per share in ZAR terms declared, an increase from the 47.5 cents per share in 2022 - Cash generated from operating activities increased by 42.0% from USD25.0 million to USD35.5 million." In a trading statement for the six months to 30th June 2024, the company estimated that HEPS (in rands) would be between 1.9% lower and 18.1% higher than in the previous period. The company said, "These lower EPS for the current period were largely the result of non-cash adjustments deemed appropriate in the interim results."
It is now trading at about 50% of its net asset value (NAV) and on a price:earnings (P:E) multiple of 4.22, which looks like good value. We regard the company's horizontal drilling technology as a potentially disruptive technology in the mining industry, which extends the life of some mines and makes others viable again. So, while this is a risky share because it is linked to the commodities markets, it has the potential to offer strong growth because of the new technologies it has that could revolutionize the mining industry. In our view, this is an interesting company with the potential to perform well as its new horizontal boring machine gains traction.
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