Master Drilling: Hidden Gem

OLD ARTICLE – Original posted on March 29, 2016

When I first encountered Master Drilling (MDI), I was mildly impressed and put them on the radar to follow closer.

Over the subsequent three years, I began to become quite impressed with the business and its operations.

Did you know that Master Drilling (run out South Africa’s Fochville), has a global raisebore drilling fleet that is about two to three times the size of its nearest global competitor?

Did you know that Master Drilling actually designs and builds its own drilling rigs? Not orders them off the shelf, like most drilling companies, but actually runs a team of engineers who constantly design, improve and update their rigs. These rigs are then often built by their in-house owned business in China (along with the key spares, which saves a massive amount of money).

Did you know that Master Drilling’s fleet still includes the original rig that the business was founded on? That is how long-life these exceptional machines can be, if properly maintained.

Did you know that Master Drilling is going through a process of automating their entire fleet? Everyone talks and talks about mining automation, but who is actually doing it? Simple, Master Drilling is.

Did you know that Master Drilling considers their core skill being that of drilling holes? Hence, they are considering different ways to monetize this skill, for example, going into parellel industries that need holes drilled. This lowers their concentration risk they have due to their exposure to mining, while increasing the direct utilisation of their drilling fleet.

There are no two ways to say this: Master Drilling is a flipping amazing business.

And following what I expected to happen, they have put out yet another good trading statement with USD-based HEPS growing by 10% to 20%.

This is a for a stock that trades on a Price Earnings (PE) of 8.5x… Just purely on the latest growth out of Master Drilling, the share looks ridiculously cheap. Then add all the rich Intellectual Property (IP) and competitive advantages I have hinted at above, and you get what is probably one of the cheapest shares I can find on the JSE. It is not often you find a fast-growing, globally-dominant, hard currency earning, IP-rich business that is progressively de-risking itself that is a small cap. It is even less rare that this business is local and locally-listed. And, to my knowledge, is singular that this business is run out of Fochville, South Africa.