Simone GroganThe West Australian
Mon, 11 December 2023 5:55PM
Perenti managing director Mark Norwell. Credit: Sharon Smith/The West Australian
Investors in Perenti were seemingly disappointed with a guidance update that has the mining services business going into the new year with higher debt and a lower capital expenditure than expected.
The update came one month after Perenti closed a deal to acquire rival drilling contractor DDH1 in a $400 million largely scrip-based transaction. Its shares fell more than 9 per cent in early trade but pared losses to be down 5.4 per cent to $1.04.
The decline follows new figures Perenti posted to the market on Monday that have the contractor bringing in revenue of between $3.3 billion and $3.4b for the 2024 financial year, bumping up a previous band of between $2.8b and $3b.
Borrowings as at December 31 are expected to be above a predicted full-year guidance range, which Perenti said was due to the timing of getting the DDH1 deal done and a $50m cash payment made as part of consideration for the transaction.
Citigroup analysts were of the view Perenti’s net capex and leverage guidance for FY24 were “below and above our forecasts for the year, respectively.”
“We continue to see PRN as undervalued but held back by market sentiment which is not likely to change meaningfully in the near-term,” they wrote in a note.
Net capital expenditure is set to be higher than expected next year, according to Monday’s update, from about $330m to $365m.
Underlying earnings, excluding depreciation, are expected to land between $310m and $325m following the acquisition.
Perenti managing director Mark Norwell said the companies had a strong cultural alignment and were focused on bringing the businesses together.
“I am very pleased that the drilling services division is performing to expectations and that we are seeing steady demand for our drilling expertise, with rig utilisation rates comfortably above long-term averages,” he said.
“For the remainder of FY24, we continue to expect the group to deliver strong operational performance and earnings which will continue to strengthen our balance sheet and generate cash.”
Perenti recently recruited mining executive and former Mincor Resources boss **rielle Iwanow to its senior ranks.
DDH1 chair Diane Smith-Gander. Credit: Simon Santi/The West Australian
DDH1 shareholders have delivered the minerals drilling group to Perenti Group, despite pocketing less than expected from the mining contractor’s $300 million takeover offer.
The mainly scrip-offer was backed by 92 per cent of voting shareholders and nearly 65 per cent of shares cast at a meeting in Perth on Monday, easily clearing the approval thresholds required under Perenti’s scheme of arrangement.
Perenti is offering 12.38¢ cash and 0.7111 shares for each DDH1 share.
The bid was worth $1.01 a share when it was announced in June. However, the implied value has fallen with Perenti’s share price, forcing DDH1’s board to reiterate its support for the offer and emphasise the long-term value of the tie-up.
At its close on Monday, DDH1 shareholders are receiving just under 86¢ a share.
Chair Diane Smith-Gander admitted to the short meeting that directors were asking shareholders “to look through recent share price trading performance” to understand the board’s confidence in its recommendation.
The acquisition of DDH1, which also operates under the Strike Drilling, Ranger Drilling and Swick brands, will give Perenti one of the top-five biggest fleets in the world, with nearly 200 rigs.
DDH1 recorded an 18.4 per cent lift in annual net profit to $42.5m on a 9 per cent rise in revenue to $550.4m.
The all-but completed bid calls time on DDH1’s short and disappointing tenure as a listed company, coming just two years after the group arrived on the ASX via an over-priced $150m float directed by its major shareholder, private equity group Oaktree.
The takeover will reweight Perenti to Australia from Africa, with 54 per cent of the merged group’s $3.5b of revenues to be derived from its home market.
In addition, it creates a bigger pure mining services play that could be more attractive to investors focused on scale.
The offer was backed by about shareholders holding about 38 per cent of DDH1, including Oaktree director Murray Pollock and his fellow DDH1 co-founders Richard Bennett and Matthew Izett.
The company’s managing director, Sy Van Dyk, will remain with the combined group as the head of Perenti’s new drilling services division.
Also, DDH1 chair Diane Smith-Gander and fellow director Andrea Sutton will join an enlarged Perenti board.
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