Mitchell Services delivered a sharp earnings acceleration in FY27’s opening quarter, helped by stronger rig utilisation, higher revenue per shift and a $3.4 million insurance benefit. Ten additional underground rig contracts provide a potential route to 80 operating rigs, although higher capital spending and softer cash conversion temper the picture.
- Revenue rose 25% to $66.5 million in FY27 Q1
- Underlying EBITDA increased 29% to $15.3 million excluding insurance benefit
- Contracts signed for 10 additional underground rigs
- Pathway to 80 operating rigs before FY27 ends
- Cash conversion fell to 53.9% as capital spending increased
Record quarter sets a higher operating base
Mitchell Services Limited (ASX:MSV) has opened FY27 with its strongest quarterly earnings performance in the announcement, reporting revenue of $66.5 million, EBITDA of $18.7 million and earnings before tax of $13.3 million. That represented year-on-year increases of 25%, 58% and 118% respectively, based on unaudited management accounts.
The headline EBITDA number includes a one-off benefit of approximately $3.4 million from the finalisation of the Grosvenor underground insurance claim. Stripping that out, underlying EBITDA was $15.3 million, up 29%, while underlying EBT reached $9.9 million, up 62%. The underlying result is therefore materially stronger than a simple insurance-adjusted comparison might suggest, but still leaves the reported quarter benefiting from an exceptional item.
Rig contracts point to further fleet utilisation
Operationally, Mitchell averaged 66 rigs in service during the September quarter, compared with 62.3 a year earlier, while shifts worked rose 6.6% to 10,132. Revenue per shift increased 17%, according to the company. The stronger start follows the FY26 earnings rebound, which featured a 67% annual EBITDA increase and a return to net cash.
Mitchell has also signed drilling contracts for a further 10 underground rigs. Combined with what it describes as a strong opportunity pipeline, those contracts create a pathway to operating 80 rigs before the end of FY27. That would equate to roughly 85% utilisation of the existing 93-rig fleet. The company says higher utilisation could support a further step-up in earnings during FY27 and FY28, but that possibility depends on contracts converting and utilisation remaining high.
Cash remains positive as spending and debt rise
Cash stood at $11.9 million at 30 September, only modestly below the $12.1 million held at the end of June, after Mitchell paid a $4.2 million fully franked final FY26 dividend. Equipment finance debt rose to $10.8 million from $8.7 million, while capital expenditure increased to $11.8 million from $3.6 million in the prior-year quarter.
Operating cash flow was $10.1 million, producing a cash conversion ratio of 53.9%, down from 82.9%. Mitchell attributed the weaker conversion to rising trade receivables, quarterly tax payments, inventory bought ahead of traditional wet seasons and the insurance proceeds being recorded as investing cash flow rather than operating cash flow. The explanation provides detail, but the quarter still required substantially more investment to support the expansion in operating activity.
Loop project records BMA-linked drilling milestone
Mitchell’s Loop Decarbonisation business also reported a notable technical result. Under its contract with BMA, the team drilled a horizontal well from an open-cut pit and intersected a vertical well 1,540 metres away, which the company described as a world first. The work builds on early Loop drilling progress reported in earlier coverage.
The company said interest from other clients in initial advisory services remains strong as awareness of methane liabilities under the Safeguard Mechanism increases. The BMA trial has also been referenced by BHP as a milestone and priority in an ESG roundtable presentation. Whether the technical achievement develops into repeatable commercial work remains a separate question from completing the proof-of-concept drilling.
Bottom Line?
The earnings momentum is tangible, but the next test is whether 80 operating rigs can be reached without cash conversion and equipment debt deteriorating further.
Questions in the middle?
- How quickly will the 10 newly contracted underground rigs move into operation?
- Can underlying EBITDA growth persist once the Grosvenor insurance benefit is fully absent?
- Will Loop Decarbonisation convert the BMA trial and advisory interest into recurring commercial revenue?