Swick Mining Services Ltd

A Quick Look at Q4FY19 Earnings:Swick Mining Services Ltd (ASX: SWK) is involved into the provisioning of mineral drilling services to the mining industry in the Asia Pacific and other international regions. The market capitalization of the company stood at ~A$59.02 Mn as on 30^th July 2019. Recently, the company has released its unaudited results for the three months ended 30 June 2019 (Q4 FY19) and preliminary FY19 results. The company reported unaudited revenue, EBITDA and EBIT of $33.8 Mn, $5.3 Mn and $0.6 Mn, respectively from Drilling Business in Q4 FY19.  Adding to that, the robust Q4 FY19 results were achieved despite the previously advised impact of rigs demobilising and transitioning to new sites during the period. In FY19, it drilled 1,080,078 metres, representing a fall of 11% from FY18.  At a Group level, the company expects consolidated EBITDA of around $25.6 Mn (unaudited) and EBIT of around $4.7 Mn (unaudited) in FY19. The robust cash flow of $25.6 Mn (unaudited) provides confidence to the company that it can resume to generate decent shareholder returns. The company expects to release the audited FY19 accounts on or around August 27, 2019.

It witnessed average fleet utilization of 70% throughout FY19 in comparison to 74% utilization in FY18.It was also mentioned that the earnings growth represents the success in a strategy of deploying drill rigs onto better performing contracts or new projects and reducing costs throughout the business. In Q4 FY19, the company built 4 new mobile underground diamond drill rigs in order to service increased rig demand, which was deployed to the Pogo gold mine in the USA.

The company bought a mobile carrier and high torque drilling components to enable the construction of a high torque Nevada?specific mobile underground core drill.


Swick Rig Fleet (Source: Company Reports)

In another update, the company via a release dated 29^th July 2019 announced that it had appointed Mr Stuart Carmichael as an independent, Non-Executive Director of the company.Mr Stuart has rich experience in corporate finance and business advisory, as well as holding leadership positions and advising businesses throughout multiple geographies and industries. Moreover, Mr. Stuart is currently a principal and director of Ventnor Securities Pty Ltd and Ventnor Capital Pty Ltd.

Stock Recommendation:The company reported a gross margin and EBITDA margin of 82.8% and 19.1%, in 1H FY19, reflecting YoY growth of 3.6% and 9.2%, respectively. The net margin of the company stood at 2.5%, up by 4.3% on a YoY basis. This represents that SWK has improved its capability to convert its topline into the bottom-line.

The return on equity stood at 2.3% in 1H FY19 with YoY growth of 3.8%, which showcases that the company has provided better returns to its shareholders. The current ratio of the company stood at 1.94x in 1H FY19 against the industry median of 1.89x, which indicates that SWK is in a decent position to address its short-term obligations in comparison to the broader industry. The respectable liquidity levels provide headroom for making deployments towards growth initiatives. Coming to the stock’s past performance, it produced returns of 6.25% and 27.50% in the time span of one month and three months, respectively. As per ASX, the stock is trading closer towards 52-week higher level of $0.275, which increases the probability for a correction in the near term. Hence, in view of aforesaid parameters and current trading level, we have a wait and watch stance on the stock at the current market price of $0.270 per share (up 5.882% on July 30, 2019, owing to the release of Q4 FY19 and preliminary FY19 results).

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