Investment Matters

Company Profit Reporting Season Concludes

Profit reporting season concluded this week.  Summaries for three of your companies that released results are provided below. Moreton Resources also released it's result today, and a summary for it will be provided next week.

Next week's IM will also contain our usual profit reporting season wrap-up.

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MMA Offshore’s result showed that the turnaround has commenced.  Whilst there is some way to go, the positive trend is evident and H2 was stronger than H1 (on the back of project work in Australia).  Specifically, utilisation bottomed at 48% in H1 FY-18, and had a strong uptick to 65% for H2 FY-18.   Through FY-19, the company expects utilisation will increase (48% of FY-19 vessel days are already contracted or highly probable), but only with modest improvement to rates.

The drivers of improving demand are in place – the oil price recovery, a step up in offshore FIDs (final investment decisions, or new production well go-aheads) expected in FY-19 and FY-20, and inspection and maintenance are expected to increase due to past deferred work. 

The company is well positioned to benefit from improving demand, including having restructured its fleet into vessels likely to generate higher returns (larger, newer and less standard).

Net tangible assets (NTA) per share were $0.38 (versus a share price circa $0.25).  We expect this gap to NTA to close as the earnings recovery becomes evident in the business.

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FY-18 was a big year for Paragon Care.  It completed 9 acquisitions, had a step up 17% in revenue to $136.7m, and a step up in EBITDA (earnings before interest, tax, depreciation and amortisation) of 15%, to $19.7m.

Proforma (i.e. if Paragon had owned all the business it acquired for the full financial year) revenue would have been $238m, and EBITDA $30m.  The decline of earnings on a per-share basis (see table below) reflects the additional average number of shares on issue (from the raising used to fund the acquisitions) being ahead of the acquisitions (and associated earnings).  On a proforma basis, this dilution did not occur.

Paragon released a positive trading update, as well as guidance for FY-19.  The company stated it earned record revenue in Jul-18 (without quantifying it).  Furthermore, it is targeting FY-19 revenue of $260m and EBITDA of ~$36m.  This is a very material increase as compared to FY-18’s EBITDA of $19.7m.

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TZ Limited released a result in line our expectations – quarterly updates have provided qualitative and qualitative insight.  Revenue declined, as the business ensured it was entering only into higher margin / profitable contracts, in more attractive market sectors.   But it was significantly higher in H2 vs H1 ($6.0m H1 / $11.4m H2), as the benefits from the changed strategy started to take effect.  The strategy change also flowed into increased gross margin; FY-18 51% (FY-17 46%).  Lower overheads (right-sizing of the business operations and Board) also assisted to strengthen margins.

Cash flow, whilst not back to neutral as we had hoped, improved materially vs FY-17 and was impacted by the timing of contracts as the financial year came to a close.

Although not evident from the numbers in the table below, we can see a vastly improving trend with performance of the business.  With significant opportunities for FY-19 (and beyond), and a disciplined business focus, we expect material improvement for FY-19.