Australian driller Mitchell Services poised for bumper FY23, says stockbroker Morgans

ASX-listed drilling company Mitchell Services is set to benefit from a ‘highly constrained’ market which will boost its performance in the 2023 Australian financial year, according to leading stockbroker Morgans.

In a research note on the mining services firm, Morgans said Mitchell is poised for a ‘significant’ jump in earnings before interest, taxes, depreciation, and amortisation (EBITDA) this year, after positioning itself to capitalise on rising demand for drilling services.

With 100 rigs at its disposal, Mitchell is one of the top 10 drillers in the world with a lucrative fleet that can quickly respond to client demand across a variety of commodities and drilling types.

Up to 90% of the company’s revenue is derived from Tier 1 mining companies, meaning it is ‘well insulated’ against potential slowdowns in junior exploration activity, Morgans said.

The stockbroker noted industry-wide inflationary pressures forming a natural headwind to Mitchell’s growth trajectory, but pointed to the firm’s ability to offset those pressures with increased utilisation, confirmed rate rises (with approximately 30% contract renewal) and improved contract terms.

Mitchell’s recent move to implement a dividend payments programme in FY23 will provide a further boon to shareholders, Morgans added. Up to 75% of the company’s post-tax profits will be paid to shareholders in dividends.