Sink­ing more than one strat­egy

Mas­ter Drilling is a glob­ally di­ver­si­fied busi­ness at the fore­front of ground-break­ing drilling and is the leader in its field – a rare find in­deed.

Finweek English Edition - - MARKETPLACE - Editorial@fin­ Samantha Steyn is a port­fo­lio man­ager at Can­non As­set Man­agers.


since 2012, Mas­ter Drilling is ar­guably the num­ber one raise bore-drilling com­pany in the world. De­spite go­ing pub­lic just as the world’s min­ing giants wres­tled a drop-off in com­mod­ity prices, Mas­ter Drilling per­se­vered and demon­strated its in­cred­i­ble re­silience and agility. Grow­ing prof­its at a com­pounded an­nual rate of 16%, in dol­lar terms since list­ing, the group has cer­tainly proven suc­cess in its niche, and a world-class value of­fer­ing to both clients and share­hold­ers.

The key to the or­gan­i­sa­tion’s suc­cess is an in­valu­able ser­vice of­fer­ing that is not only de­vel­oped and owned in-house, but also mo­bile across con­ti­nents and in­dus­tries. Im­pres­sively, the com­pany is able to drill holes up to 8 me­tres in di­am­e­ter and 1km deep! With state-of-the-art tech­nol­ogy, Mas­ter Drilling re­duces the time and cost of drilling holes, while im­prov­ing safety stan­dards us­ing be­spoke high-tech machin­ery. This changes the game sig­nif­i­cantly. Pre­vi­ously dor­mant ven­tures – due to ex­tended project lives – be­come vi­able, prof­itable and in­creas­ingly fea­si­ble.

Highly in­ven­tive, the group has re­cently re­vealed that its Hor­i­zon­tal Raise Bor­ing (HRB) tech­nol­ogy is ready for in­ter­na­tional roll-out af­ter a suc­cess­ful pilot test. HRB pro­vides me­chan­i­cal ex­ca­va­tion of a tun­nel be­tween two ex­ist­ing ac­cess points. The steady progress of the reamer can ex­ca­vate an av­er­age 6 me­tres a day, com­pared with 2 me­tres in con­ven­tional drill-and-blast cy­cles. This tech­nol­ogy is pos­si­bly a game-changer for the group and, even bet­ter, it’s still priced in as free op­tion­al­ity.

While the com­pany has of­fered its ser­vices pre­dom­i­nantly in the min­ing in­dus­try, it is clear that its vi­sions are far broader. Un­der the guid­ance of founder and CEO Danie Pre­to­rius, who owns 53% of the com­pany, the group has man­aged to grow an im­pres­sive fleet that will con­tinue to en­hance earn­ings. How­ever, the most un­der­val­ued and over­looked as­set is the com­pany’s in­ter­nally gen­er­ated in­tel­lec­tual prop­erty – ar­guably a mis­priced tech­nol­ogy busi­ness.

The group earns more than 75% of its rev­enue out­side of South Africa, with a clear strat­egy to di­ver­sify across re­gions, com­modi­ties, cur­ren­cies and in­dus­tries. In its most re­cent results, the group in­creased head­line earn­ings per share by 19.4% to 210c. Most re­mark­ably, this con­ser­va­tive man­age­ment team runs a very neat op­er­a­tion with costs no­tably man­aged along­side a solid bal­ance sheet. With op­er­at­ing mar­gins at roughly 22% and the gear­ing at 21%, it’s jus­ti­fi­able to say that Mas­ter Drilling is a rare find.

At the fore­front of ground-break­ing drilling, the com­pany un­doubt­edly has ex­cit­ing prospects. Be­ing a glob­ally di­ver­si­fied busi­ness, with pre­dom­i­nantly hard cur­rency-based rev­enue and a lo­cal cur­rency cost base, it cer­tainly has an at­trac­tive mix. Cur­rently on a price-to-earn­ings ra­tio (P/E) of eight times, a solid and grow­ing or­der book and re­cently a div­i­dend payer, Mas­ter Drilling is cer­tainly a share worth a dig.

In its most re­cent results, the group in­creased head­line earn­ings per share by 19.4% to 210c.

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