Stocks In Focus: Perenti, September 24 2025

0:29A listener production. on both YouTube and the Motley Fool Money podcast feed. You're either watching that right now on YouTube, maybe you're listening on the podcast feed, wherever you are, wherever you're consuming this particular piece of content. Thank you for being with us and by us, of course, about me and of course, Darius Zargarmi. Darius, g'day. G'day, Scott. How are you going? Mate, I'm very well. Thank you. Hope you are too. Mate, before we kick off, a quick boilerplate reminder to anybody listening or watching. This is general advice only. The Motley Fool doesn't provide personal advice.

0:56What's the difference? We can't say you should do this thing. we're going to simply give you our opinion on a particular investment. In this case, the company is Perenti. And when we do that, we'll say, here's what we think about the company. You need to work out if it's right for you. We give the general advice. You work out whether it suits you personally. And then, of course, the YouTube, the internet's forever. Podcast feeds probably are too. So we're doing this at a point in time. Towards the end of September, 2025, if you're watching this subsequently, anything could have and probably has changed.

1:24So please keep that in mind as we go. I guess the last one, this is not a formal recommendation. I'm going to ask Darius about the business, give us the pros and the cons. We'll ask him whether he thinks it's going to be a market beater or not. But this is not a formal recommendation. We have formal recommendations. We do Motley Fool Stock of the Month on YouTube once a month. You can get that for free. And Motley Fool's got a heap of other opportunities for you to be part of as well. All right, Darius, with that out of the way, mate, let's talk about Parenti. It's probably a company most people haven't heard of, I'd suspect.

1:51Code is PRN on the ASX. Would you mind telling us what it does, please? Yeah, so Parenti, it hasn't been Parenti forever. It was actually Ausdrill up until 2019, I think it was. It was founded in the 1980s, but it's actually really grown into one of the largest diversified mining services companies in the world that's capable of offering both surface and underground mining solutions at scale. uh it's got experience i mean while it's still kind of hidden and unknown to some extent i guess uh just because it's operations i guess it's worked on some of the biggest projects in the world um and it has more than 10 000 employees who operate out of about 12 different countries um it's got very solid exposure to gold most of its operations are actually in the gold mining sector.

2:46Most of its operations, again, are in underground mining, which is an area where it has a real deep speciality. But Parenti is a business. It operates through three distinct service lines. Its largest one is contract mining. So here, basically, the company earns about 72 % of its revenue, 75 % of its EBITDA. So it's very much the largest segment. But it basically provides, as the name suggests all of these other plans are going to be pretty much as the name suggests underground contract mining services it's got a strong history of delivering in Australia Africa North America and this segment actually includes its its Barman Co business which it acquired I think back in 2022 if I remember correctly and this is one of the world's largest hard rock underground mining services companies.

3:40It's a massive company or a massive segment for the company. Then there's African mining, sorry, African underground mining services. That one does, again, as the name suggests, it's specialist underground contract mining services for Africa. Then there's African mining services, which is, again, African mining services. It's kind of as the name suggests. But the last one might shock you. It's called Aureology, but it's a specialist mine planning and mining technical consultancy business. So that's the contract mining segment in a nutshell. Then its next largest segment is drilling services, which there's not going to be any surprises here.

4:23It's going to be what the name says. But it makes up about 22 % of revenue for the company. um they've got about 300 rigs which is a really really good scale of a number of rigs and this segment just like the the contract mining segment it operates through a number of really highly reputable uh businesses in the industry so there's names like ddh1 ozdrill swick mining ranger drilling um i i will say maybe these names mean a lot more to me because i'm a shareholder but um I'm pretty sure these are all very reputable and highly well-known names. Just to go back to what I mentioned earlier about Ausdrill.

5:06So Parenti used to be called Ausdrill up until about 2019. And that's actually when they made that Barman co-acquisition. And with that, they changed their name and changed their operations a little bit into that contract mining and drilling services sort of segment. but each of these each of these businesses provides specialist drilling services it covers the whole mining cycle the whole life cycle of a mine from exploration through to production so it's really it's specialized but it's also very broad in its application and then the final segment that I wanted to quickly touch on was the mining and technology services segment it's a very small one only represents about 6 % of revenue and this is really another specialized portfolio of businesses that are just aiming to add value and technical expertise to the mining cycle.

6:00Things like procurement, supply of equipment, maintenance and servicing, all those sort of things that a mining company might need to have. Perenti can kind of provide those. But again, it's only a very small segment. It's bread and butter is that contract mining services, it's drilling services. One thing I do quickly, I forgot to mention it before. And Parenti operates predominantly in Australia. So about 50 % of its revenue actually comes from Australia. 25 % comes from Africa. And then there's the remainder that comes from North and South America and Asia as well. But yeah, these are Parenti's businesses in a nutshell, really.

6:39It's kind of both very concentrated and incredibly diverse. Think about the geographic diversification, the minerals. It's obviously providing its services for a human range of customers as well. So on one hand, kind of just in a single sector, but then almost every company is, but actually more diverse than I knew about, actually. So I'm glad you took us through it. Also, thanks for sharing the fact you are a shareholder. We like to do those sort of things. We disclose those at the Motley Fool. Why? Because we figure you should know. We try our level best not to let it influence our recommendations, our thoughts, our analyses, but you should know so you can make that decision.

7:09Speaking of which, you are a shareholder. So I assume you know the pros pretty well, but for our viewers and listeners, what are some of the best parts of the investment case? Talk about the business. Let's talk about the investment case itself. Why should our viewers and listeners consider looking at Parenti? Yeah, I think one of Parenti's main competitive advantage is its scale and the deep mining expertise that comes with that. It's developed this over a number of decades in operation. It's one of the largest mining services companies in Australia and a top player globally. And what that means is it can really leverage those economies of scale, whether it's in procurement, equipment fleets, talent, all those different areas.

7:48the company also has a really broad fleet broad service portfolio of course spanning contract mining drilling support services and i think that enables it to really offer an end-to-end mining offers end-to-end mining services across the life cycle across all the like you said a very broad offering that can cover and enable it to to tender for a lot more work but while it has that scale that also has a really deep specialization um it's capable of tackling some incredibly pardon me incredibly complex mining projects uh through its barman co-acquisition in 2019 they've perfected rather something called high speed decline development and this means they can offer really efficient underground trucking methods it gives them a productivity edge over rivals that might use a more traditional sort of hoist and you know that sort of that sort of method um and within mining drilling those specialized businesses ddh1 uh ranger drilling and the the third one is is alluded to swick mining um they're able to undertake some really high highly complex drilling techniques and that's really why parenti acquired those businesses i was actually not originally a shareholder of parenti i was originally a shareholder of SWIC mining services some years ago.

9:12And then SWIC was taken over by DDH1 and then Perenti took over DDH1. And so I got, you know, but I was a big fan of SWIC mining back in the day because they had that specialized drilling services. And I was still a fan of DDH1 because again, they had very, very specialized drilling services on their own. And I think Perenti's made a great acquisition in DDH1 because it's added to its drilling services portfolio and it's able to offer things like drill and blast, gray control, deep hole drilling, diamond core drilling, air core, reverse circulation. All of these things that a certain niche providers wouldn't be able to provide or would only be able to provide one type of drilling.

9:58Perenti has a whole portfolio of drilling options available to it. And this segment is a really quickly fast growing one for it. But that's really only important if there's a big market to play in. Fortunately, mining services is a massive market, massive industry. It goes without saying. But the data does speak to that as well. Some data from Global Market Insights has highlighted that the global contract mining services, That's just the contract mining service, not the drilling. It's valued at about US$20.3 billion. And it's expected to grow at about 5.1 % on average through to 2034. So it's going to be growing quickly.

10:40It's already a big industry. I think those trends can really continue. Things like urbanization, industrial growth, especially within emerging countries. I think those things will all really lead to a bigger appetite for minerals. And I think that that big appetite, hopefully, the ability of these mining companies that have these mines will be not able to grow as quickly as they would like. And that means they'll be increasingly turning to companies like Parenti, specialized contractors who can really provide these solutions as and when they're needed really quickly. And lastly, I'll just quickly touch on what I see ahead for Perenti, the year ahead or the years ahead, I guess.

11:27Perenti's guidance for FY26, while its share price jumped quite a bit after its FY25 results, I actually thought its FY26 guidance was quite weak.

11:39EBITDA, earnings before interest tax and monetization, not the depreciation bit in there. They're expecting growth of about 1.4 % and 3.6 % for revenue and EBITDA at the midpoint. And free cash flow is actually expected to fall for the year. But I think despite this, while it doesn't sound great, the company's nevertheless in a really strong long-term position. They've got a really well-diversified backlog of work and opportunity pipeline. Those are about$6.5 billion and$17.4 billion, respectively. They're also in a much stronger financial position than they were last year, like in 2024. Net debts fallen considerably from$469 million to$305 million.

12:27So they've been paying that down. And their gearing ratio has actually fallen from 20 % down to 14%. And I think what that really provides is good support for the company's long-term growth and the company's long-term growth targets. Because beyond FY26, into the long term, they're targeting revenue growth of between 5 % to 10%, earnings per share growth of greater than revenue growth, and returns on equity of over 10%. But those are just a few of the positives I see for Peron to your head. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

13:32might not want to invest in Perenti. Maybe you can run us through those, please, Darius. Yeah, I think, and this one's probably true of all companies in the mining sector. Perenti's really, it's not a mine, it's a mining services provider, but at the same time, it's indirectly exposed to the volatility of the commodity markets. If prices of key commodities like gold, copper, et cetera, would have fall significantly, or if the global mining investment cycle was to turn downward. Mining firms will probably be cutting their capital expenditure. They'll be delaying projects, suspending operations, and that would really shrink the available work for Perenti.

14:15There's been plenty of examples of this. A historical example, the mining slowdown of 2014, 2015. It hurt the entire sector. Perenti's share price in 2012 was$4, but it really quickly fell to as low as 20 cents in 2015. It plummeted. I think that's almost 80, 90%. And there's plenty more examples of this. If we look at its past share price chart, which again is no indication of its future performance, but what it does tell us is that this business is highly cyclical, very, very closely linked to the mining cycle, highly cyclical business. um in along a similar vein i guess uh running complex mining operations mining operations are highly complex um and that itself comes with substantial risk uh operational risk um perenti has a lot that it needs to maintain a lot that it needs to manage things like mine safety equipment reliability the productivity of its mine operation um if a project was to encounter to technical difficulties, cost overruns, if it didn't achieve the mining rates that the company was expecting to achieve, the financial consequences of this would be probably quite severe.

15:36Poor project performance can also result in one-off losses for the company, foregone future revenue. It can hurt relationships with mines. And really, it sounds very simple like the mining operation being disrupted, But the thing to remember is that mobilizing for a new large contract like this, it requires significant upfront capital. They've got to bring the trucks. They might even need to buy a new fleet. They need to bring those trucks in, those drills in. It takes a lot to achieve these things. So, again, if a company – and the payoff isn't really until after it's all done that they get the money.

16:17so really if a client was to default or if a contract was terminated early Perenti could be left stranded with equipment that it can't use or readily use or unpaid invoices that would hurt its profits. Along a similar vein to the operational risk is a geopolitical risk of course. Perenti as I mentioned before earns 50 % of its revenue in Australia, but it does also operate in a number of other geographies, Africa, Asia, and these really carry a lot of political insecurity risk with them. In West Africa in particular, the presence of militant insurgencies, political instability, they can all really threaten personnel and operations.

17:06And there is unfortunately, sadly, an example of this. In late 2019, there was an ambush on a convoy in Burkina Faso, and that resulted in the deaths of 19 parenti employees from its African mining services segment. But that really just highlights the risk involved in operating within these jurisdictions. And besides even terrorism, things like that, there's still the risk of civil unrest, coups, resource nationalism, and just regulatory changes within these countries as well. they're very emerging countries and their changes are happening very quickly and it can be a very disruptive environment to work in, I think.

17:48But lastly, very quickly, I just wanted to touch on what should be a very obvious risk, competition within this market, whether it's in contract mining or drilling services. They're very big markets, which means they're very competitive markets as well with global competitors, smaller niche operators, specialist operators. That means Parenti is really at the risk of a competitor offering a lower bid or providing a technological edge that they just don't have. And if that was to occur, Parenti could lose some key contracts and that could, of course, hurt its revenue, hurt its profits. But yeah, so competition rather is an important one to consider.

18:28A lovely summary, mate. A lot to like, a lot to be at least mindful of if you are going to make an investment. You still own your shares, though. So I'm going to imagine you're going to tell me you think it's a market beater, but I'll ask the question anyway. We are long-term investors at The Motley Fool. We have a five-plus-year time horizon. With all our investments, again, this is not a formal recommendation. It is one that Darius happens to own. Mate, I assume it's going to be a market beater in your view. Why is that? I might actually shock you. Oh, okay. Thinking on that long-term five-year time horizon, I've been a shareholder for a number of years.

19:00So, I'm getting towards that five-year time horizon, I haven't been invested in it. But in doing my research again on the company and looking into it in another, a bit deeper as I have over the past few weeks, and I do understand the business really well. I am rethinking my investment thesis on the company. I think in the near term, there's still opportunity. but I don't invest for the near term. I invest for the long term. I think over the long term, the mining cycle could take a turn and I think Perenti would be hurt by this. I don't think it's going to be a market, Peter, over the long term.

19:38There you go. You're surprised me, mate. Well done. Very, very impressive. Good to hear, by the way. A couple of things I want to draw out here, mate. We won't make this too much longer but firstly, it's always important to reassess your investment thesis. And Darius has done exactly that. So if you're watching and listening to this, make yourself do that with some of the companies in your portfolio. you liked them, you bought them, do you still like them? Do you still think the future is going to be that bright? I will say too, just quickly, the Motley Fool's trading policy means that Darius can't take any actions at least until two days, two full market days after this one hits the interwebs.

20:07Again, why am I telling you this? Because it's important that if you're looking for advice, and again, this is not a sell by the way, but you should hope that your provider, your advisor is giving you that advice free from conflict. So if Darius does go through the exercise and kind of goes, you know what? I reckon it is probably worth selling. I'm not so sure about this. He's going to wait at least two full market days after this is published, not even recorded. Why? Because it's important that if you like what you see, you want to make a change to your portfolio, do something, buy or sell as a result.

20:35We're not front running what we suggest you might think about doing. Again, we're not giving advice in this case, but the same rules apply. So there you go. Important to make sure your advisor is, frankly, thinking again, I love it. And secondly, doing the right thing and putting you first. We're not perfect at the Motley Fool, but we try really, really, really hard to do those things as well as we possibly can. Hey, Darius, thank you, mate. Thanks for a really thoughtful dissertation on the company, Parenti, P-R-N. Again, for those who didn't catch it at the top, is the code. Thanks for being with us.

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