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Petra Diamonds warns on profits again but investors welcome covenant relief
Petra Diamonds warned on Monday that full-year earnings would come in below market expectations, having already issued a profit warning at the end of last month that reset analysts' forecasts.
Petra said on 28 January that earnings before interest, tax, depreciation and amortisation would come in 10% to 15% lower than consensus, but in its interim results on Monday, the group revised its adjusted EBITDA for the year down a further 5% from the previous $244.9m figure.
Despite this, the African-focussed producer still expects revenue to be in line with market expectations as revenues for the six months leading to 31 December remained broadly flat at $225m compared to $229m.
Petra, which owns and operates the Cullinan mine responsible for producing the crown jewels, said adverse currency movements as a result of a strengthening South African rand and a weakening interest in diamonds amongst millennials had hurt the firm, which swung to a loss of $117.7m from the $35.2m profit it had seen in its first half a year earlier.
The number of carats sold by Petra dropped 5% despite production increasing 10% to 2.20m after a block to exports of diamonds from its Tanzanian operations dragged adjusted EBITDA to $80.1m, down from $87.1m.
Petra claimed to hold sufficient banking facilities to meet its working capital requirements after its lenders agreed to waive its December covenants, as well as resetting its requirements for the current trading year.
RBC Capital Markets said: "Petra continues to work through its tight liquidity situation. Today's covenant waiver provides increased flexibility. 2018 should see the Cullinan ramp up fully revealed and in the meantime, we expect continued volatility in what we think remains a compelling medium-term growth story."
RBC reiterated its 'outperform' rating on Petra, but dropped its target price from 100p to 85p, saying that although the waiver to its December covenant test, and the revision to its June and December 2018 tests, had improved the company's outlook, it calculated the company was still slightly offside the revised covenants, and that significant general ramp-up risks still remained at Cullinan "in what remains a volatile wider market".
Net debt widened to $644.7m from the previous year's figure of $555.3m.
Johan Dippenaar, Petra's chief executive, said: "H1 saw further growth in production to 2.2 million carats. Our focus now is to keep on delivering from the new production blocks, particularly at Finsch and Cullinan where the expansion programmes continue to ramp up and to further optimise the new Cullinan plant. The challenge of the strong Rand has also sharpened focus on our operating and capital expenses."
The company also announced that Jim Davidson, its technical director, who built the business from the ground up with Dipenaar, would be standing down from his role in June, and that chief financial officer Jacques Breytenbach would join the board as finance director, effective immediately.
At 1055 GMT, the shares were up 9.2% to 70.05p.