Tuesday 31 May 2016 by Company updates

Barminco shows steady 3Q16 performance


Barminco’s third quarter result is characterised by moderate earnings growth, improved free cashflow generation and a sound cash position


Barminco has released unaudited third quarter (3Q16) financial results for FY16. The third quarter shows a continued trend of steady financial performance, key points include:

  • Revenue year to date is up 7% to A$387m, primarily due to the Nova Bollinger and Roseberry contracts which were both in the ramp up phase in the prior corresponding period
  • EBITDA (before redundancy costs) of A$27.2m for the quarter was broadly in line with 2Q16 (A$28.2) and on a year to date basis EBITDA is up 9% to A$78.6m. The EBITDA margin has been relatively steady at around 20% on a year to date basis. The 3Q16 EBITDA margin was slightly improved at 22%
  • Freecash flow generation (after allowing for capital expenditure) has improved for the nine months to 31 March 2016, to A$35.3m from A$20.5m in the prior corresponding period
  • The company exited the Renison tin mine in Tasmania on 30 April when its three year contract ended and the mine owners decided to take the mining function in house
  • The company’s liquidity position is relatively strong. Barminco had cash of A$105.7m as at 31 March 2016, as well as approximately A$29m of additional liquidity available through its equipment financing lines and A$19m in an undrawn revolving credit facility (which was reduced from a previous A$50m size but the term was extended until MONTH  2018)
  • During October 2015 and February 2016 the Group repurchased and cancelled a further US$28.8 million in principal value of its bonds in transactions that were funded by the company’s cash reserves. Importantly, the company has been able to maintain a fairly steady cash position of around A$100m even allowing for the bond buyback because of the improved freecash flow generation
  • The company had debt of A$430.7m as at 31 March and net debt of A$325m. On an annualised basis FY16 total debt / EBITDA is at a high 4.1x while net debt / EBITDA is at 3.1x

Year to date results show an improvement over the same time last year with all profit related results higher. Quarterly and year to date results are shown in the table below.

Source: Company presentation

A summary of Barminco’s key contracts are listed below and highlights its commodity exposure to gold, nickel and zinc. A number of contracts roll off over FY17 and FY18 so contract renewals is a key risk for the business. We note a number of these contracts below have extension options.

The Barminco 9.00% fixed rate US dollar bond maturing in June 2018 is one of the higher yielding opportunities within the FIIG Direct Bond universe offering ‘mid teen’ yields. The high yield reflects a number of key risk considerations, namely:

  1. mining services being considered a ‘high risk’ sector facing challenges
  2. near term contract renewal risk
  3. very high leverage/debt in the business

However, recent performance has been steady and earnings have improved by about 10% versus the prior corresponding period. In addition, the company’s exposure to metals related commodities (gold, nickel, zinc) has provided an earnings buffer versus mining services business more heavily exposed to coal, oil and iron ore (such as Emeco).

While leverage remains high, the company has progressively reduced its debt in recent years through bond buybacks and with a cash position of $105.7m there is further scope for debt reduction over the coming years. If the company was able to further successfully reduce leverage (through earnings improvement) then we would expect increased confidence in the credit profile and bond price appreciation.

Liquidity has been patchy in the Barminco bond. From lows of around US$75 the bonds are now offered in the mid to high US$80s implying high double digit yields. Please contact your FIIG representative for current pricing levels. A link to the financial results is available here.External link - opens in a new window

Please contact your FIIG representative for further details on the Barminco US dollar bonds. Available to wholesale investors only with a minimum face value of USD10,000.