Pro Forma results ahead of Prospectus forecast

DDH has delivered a strong maiden result as a listed company, with Pro Forma financial results in line with its Jul’21 update that was ahead of Prospectus estimates. Drilling revenues grew +17.3% YoY to $294.6m (BPe $294.2m), driven by ongoing drill rig fleet growth (+11.4% YoY), expanding utilisation (+320bps to 76.6%) and higher than forecast revenue per shift (FY21 $6,486 | Prospectus $6,395). EBITDA increased +15.8% YoY to $74.6m (BPe $74.8m), reflecting a slightly lower EBITDA margin (-46bps YoY) due to higher costs relating to COVID-19 impediments and labour. The final dividend was declared at 2.18¢ps ff (BPe $1.9¢ps). Other highlights include:

  • FY21 utilisation implies strong 2H21e: FY21 utilisation of 76.6% (Prospectus 74.5%) implies 2H21 utilisation of ~79.5%, which was likely weighted to 4Q21. Momentum has continue into FY22e, with current utilisation in the “mid-80%s”.
  • Set to deliver strong FY22 growth: DDH is set to deliver strong FY22e growth supported by the annualised contribution from the +10 rigs added to the fleet in FY21 and another +8 rigs that will be added to the fleet in FY22 (+7 to delivered by Dec’21).
  • Rates forecast to increase: Rates are forecast to increase in FY22e due to high demand, constrained rig supply, and tight labour. ~10-12 month lead times on new rigs will limit the speed of a supply response, supporting utilisation and rates in our view.
  • Cost pressures moderate margin expectations: COVID-19 impediments and labour related cost inflation is moderating margin expectations. However, we still expect higher utilisation and rates to drive higher gross profit and EBITDA per average rig.

Investment view: Retain Buy recommendation

We have marginally increased our Underlying EPS estimates by +0.2%, +0.3%, with higher revenue forecasts offset by higher cost assumptions. We expect ongoing rig fleet growth to drive FY22e earnings growth, while tight demand and supply conditions present upside risk to our utilisation and rate assumptions. Ongoing east coast lockdowns presents near-term operational challenges (QLD:WA border is most important), although we expect strong operating leverage as conditions normalise. We reiterate our Buy recommendation, with a $1.48ps Price Target (previously $1.45ps).

To read the full report click the button below.

View Detailed Report
Authored by Hamish Murray – Analyst – at Bell Potter Securities, 30 August 2021
Important Disclaimer—This may affect your legal rights: Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. This is general investment advice only and does not constitute advice to any person.
Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended.