What is the stock?
Ausdrill Limited (ASL: ASX) is a global leader in drilling services for miners both in Australia and in Africa. Drilling activities primarily relate to gold and are split approximately 50:50 between the regions.
How long have you held the stock?
Less than 6 months.
What do you like about it?
Ausdrill is a global leader in providing drilling services, reflected by its high quality customer base, which includes BHP Billiton, Barrick Gold Corp and Anglo Gold Ashanti. The industry dynamics are favourable with the demand for drilling services remaining strong due to strong operating margins of miners (particularly gold), strength in mining company’s balance sheets, increases in miners’ capital expenditure budgets and the need for miners to replace their reserves. Ausdrill has a solid balance sheet with strong cash flow as reflected in its recent announcement reinstating its dividend.
How is it better than its competitors?
Ausdrill has strong management and a long history of delivering to its customer base. Most of the competitors are in distress as they were debt-laden during the last downturn and have not been able to reinvest in their equipment base to provide the level of service required by customers.
What do you like about its management?
Ausdrill management is led by founder and managing director Ron Sayers, who having seen a number of commodity cycles, operates the business with a long-term perspective. Furthermore his interests are strongly aligned to shareholders through his ownership of approximately 12% of the company.
What is your target price?
We see fair value of Ausdrill at $2.20.
At what point would you sell it?
Our investing process combines both macroeconomic top down and bottom up fundamental analysis. This is a dynamic process which adjusts to data driven insights, so the process is not a buy and hold strategy. Given our current understanding of both the macroeconomic and fundamentals of the company, we would sell at our price target.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
The position has been held for less than six months and has risen 25% since included in the portfolio. During the same time period, the ASX Small Ordinaries Accumulation Index is unchanged.
Where do you see value?
We continue to see value at current levels despite recent share price strength.
Source: ASX
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