Mitchell Services (MSV) has commenced an on-market buyback, supported by the sale of two drill rigs for a combined $2.5 million.
The drilling services company originally purchased the rigs for a combined $400,000 at the bottom of the market in 2014. The new sale negates the need to spend approximately $1.8 million on rebuilds.
The proceeds from these sales, along with any proceeds from future sales, will contribute towards funding the buyback.
The cost for shares purchased under the buyback will be no more than five per cent above the volume-weighted average price (VWAP) of the company’s shares from the five days prior to the purchase, while the number of shares will not exceed 10 per cent of the company’s fully paid ordinary shares.
Mitchell Services has also commenced dividend payments for the 2022–23 financial year, which will see up to 75 per cent of the company’s post-tax profits paid to shareholders in the form of a dividend.
An interim dividend will be declared with Mitchell Services’ half-year results (expected February 2023) with a final dividend to be declared at the company’s full-year results (expected August 2023), with the 75 per cent dividend aligning with each six-month period.
Having built a world-class 100-rig fleet, and with the current strong demand for drilling services, Mitchell Services has increased confidence in its ability to generate future operating cash flows and reduce debt, which underpins the decision to implement the dividend policy and share buyback.
Since announcing its organic growth strategy in August 2021, Mitchell Services has delivered 11 of the 12 new LF160 drill rigs on long-term contracts.
“We are delighted with the timing of the completion of the organic growth strategy,” Mitchell Services chief executive officer Andrew Elf said.
“We have been able to successfully expand our rig fleet in advance of increased supply costs and lead times and from a funding perspective we were able to execute fixed-rate equipment finance facilities ahead of the movement in interest rates that we are currently seeing.
“At the current MSV equity price (which is low versus its net tangible assets and low versus traditional earnings multiples), the buy-back represents outstanding value for the company.”