Investment Matters

The final week of Company Profit Reporting Season

This week marked the formal end to reporting season.  Three summaries of results released by companies in your Equity portfolio are provided below.

MMA Offshore

MMA Offshore delivered a result that was in line with expectations.  A turnaround in financial performance is evident, albeit it reflects the early stages of a market recovery.

EBITDA (earnings before interest, tax, depreciation and amortisation) increased 50.3% to $27.8m, and EBITDA margin improved from 9.2% (FY-18) to 11.6%.  This was driven by operational improvements, especially vessel utilisation which increased to 72% (68% in FY-18).

Net debt was in line with FY-18, but the sustainability of debt is increasing as earnings (EBITDA) increases.  Net debt totals 42% of net assets.  Further improving debt metrics remains a focus, but the company is comfortable with how this is progressing.

Looking to future periods, MMA Offshore indicated that it is starting to see rate increases in the more specialised vessel segments.  Along with more favourable utilisation trends - especially in larger and younger vessels (i.e. <10 years old, MMA Offshore average age = 6 years) - this bodes well for the future earnings outlook.

The company’s net tangible assets are $0.35 per share (as compared to a share price of $0.18). 

MMA Offshore

Paladin Energy

Paladin’s mines have been under care and maintenance (C&M) since August 2018.  As such the company did not produce any uranium over the period.

Revenue was derived from the sale of existing inventory and purchase of uranium on-market which was delivered according to existing commitments.

The company sold 742,000 pounds of uranium oxide (U3O8) over the period at an average sale price of US$28.96 per pound.

The net cash outflow over the period was approximately US$14m, of which an outflow of US$3.7m was attributable to C&M costs at Langer Heinrich, US$4.8m was attributable to C&M costs at Kayelekara and US$1.7m was attributable to the costs of the pre-feasibility study (which is readying the company for the optimisation and rapid restart of its mine).

The company’s balance of unrestricted cash at the end of the period was $25.4m.  This is added to proceeds from the recent sale of its less economic mine, Kayelekara (which will yield approximately US$9m net and reduce ongoing care and maintenance costs by approximately US$5m). 

Ongoing costs are anticipated (post-Kayelekara sale, including care and maintenance, corporate and exploration) to be approximately US$9m per annum.  As such the company has a considerable amount of runway and is well-positioned to benefit from a recovery in the price of uranium.

Paladin

Aveo

Aveo reported a significant decline in underlying profit from $127.3m to $50.1m.  However, it should be noted that if revenue for new developments had been reported on a settlement basis (as Aveo will do from FY-20 onwards), rather than delivery basis, the profit decline would have been significantly less. 

Aveo development

Development division: After two year of significant development completions, Aveo now has a backlog (quantity 777) of development units to be sold.  Thus, it can stop development spending, and focus on selling and settling these units (and the associated cash inflow).  77 deposits were held at 30-Jun-19.  This is a good start to FY-20 earnings (for FY-19 17 deposits were held at the start of the year, and a total of 211 units were settled).  But there is a caution that settlements are taking longer time than historically (because of the residential property market conditions).

Minor developments division (units being refurbished and converted to Freedom model): Profit declined 43% to $15.9m, driven by lower units sold.  This division was also impacted by residential property market conditions.  Number of units for which deposits have been taken as at 30-Jun-19 was 11 (quantity 5 pcp).

Established Business division:  Revenue increased 3% to $168.5m, and earnings declined 21% to $46.5m vs $58.9m pcp (although this including absorbing $2.4m of additional village expenses and $5.1m additional marketing expenses).  Deposits on hand increased 125% yoy, to 125 at 30-Jun-19.

Overall, total retirement settlements declined 7% vs FY-18, and non-retirement settlements declined 55% - as the run down the non-retirement book (land lot sales) draws to a conclusion.

On more qualitative measures, Aveo has received positive satisfaction survey data from residents, and it is expanding home care services to all Aveo communities.

Net tangible assets declined to $3.50 per security ($3.92 pcp), due to a more conservative assumption on property price growth.  The statutory result was also impacted by this property revaluation.  The $3.50 NTA / security compares to the current takeover offer from Brookfield at $2.15 per security.

AVeo full year