Edison Investment Research - AJ Lucas Group (AJL) AJ Lucas Group - Drilling recovery, but a growing debt pile

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Edison Investment Research

Sanjeev Bahl

AJ Lucas Group - Drilling recovery, but a growing debt pile

AJ Lucas (AJL) has benefited from a material recovery in profitability from its Australian onshore drilling division, with underlying EBITDA in H119 (31 December 2018) of A$13.1m (17.2% margin), up from A$5.5m (9.7% margin) in the previous year. High rig utilisation and strong coal mine degassing demand support our forecast of revenue sustained at close to H119 levels (A$76.2m). AJLâ€™s track record and tier 1 client relationships support management guidance of FY19 drilling underlying EBITDA in excess of FY18â€™s A$19.7m (Edison FY19 forecast: A$22.5m). Valuing Lucas Drilling Services (LDS) at 6x Edison adjusted EBITDA (after associated overheads) equates to A$0.15/share or A$0.03/share after consideration of group net debt. This excludes our net P50 UK shale valuation of A$0.91/share. We intend to update our probabilistic value of UK shale based on an improved understanding of key inputs including initial production rate (IP rate), estimated ultimate recovery (EUR) and well costs.

13/05/2019 8 EN

Underlying

AJ Lucas Group

AJ Lucas Group is an infrastructure, construction and mining services group focusing on providing services to the energy, water and wastewater, resources and property sectors. Co. has three operating segments: drilling, which provides drilling services for the degasification of coal mines and the recovery and commercialization of coal seam gas and associated services; engineering and construction, which provides construction and civil engineering services, as well as installation of conduits and pipes using horizontal directional drilling; and oil and gas, which explores for and commercializes unconventional and conventional hydrocarbons in Europe, Australia and the U.S.

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AU000000AJL1 Australian Securities Exchange Australia

Provider

Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

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Analysts

Sanjeev Bahl

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AJ Lucas Group - Drilling recovery, but a growing debt pile

Monthly LMI Update Independent Investment Research

AJ Lucas Group - Riverstoneâ€™s interest in Cuadrilla acquisition

Feasibility Study Results in December to be a Catalyst for this Junior

Norcros - Sale of Johnson Tiles UK agreed

Henderson Far East Income - Repositioning to raise total returns

Freelancer - AI to drive return to growth

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