Thanks for the detailed comments. As a high-level, yes, they are clearly under-earning, its just a matter of how much. The coring expedition issues are probably worse than what they originally thought when they acquired it so that has to be acknowledged and I'm reluctant to capitalize some R&D unless I start seeing real growth acceleration.
I do agree on management. I believe David has been very thoughtful on succession and I like their new management. I was disappointed that Mark decided to retire but it is clear that they have a strong team. Its just a matter of getting through this cycle which everyone thought would last 1 year but may last 3 or even 4 years confounded by Geotek volatility.
Thank you for your excelent detailed write-up. I learned a lot.
I would also add the possibility that the company under the new management could do as well as or even better than David did, because they have learned from other great companies + David. I think David chose them very well. Just by listening to them speak during earnings calls, it is easy to tell they are of extremely high quality.
Another point I wanted to touch on is whether their adjusted EPS is the proper metric to calculate owner's earnings, because (1) it doesn't take SBC into account (-1.4mn) and (2) it doesn't consider that some of the 10.2mn R&D is actually growth Capex (if you consider let's say 50%, then 5.1mn is growth capex which should be considered into owner's earnings). Those two factors combined add ~50 to EPS, depending on your assumptions.
The main point is what normalized earnings are. It is difficult for us to say whether it would be a 200 (+50) EPS or 300 (+50) EPS. My best guess is based on what management said about it during the Full Year Presentation March 2026 video (between 57:40 - 1:00:15) where the 3 of them said that their "2026 guidance was 200-250 EPS based on non US recovery and no Geotek coring expedition, but they would definitely not consider it as the new normal.". How to come up with what would coring add in a normal situation? I would say if they paid 80mn for a 7x EBIT and coring is roughly 1/3 of that, we may be talking about 3.8mn EBIT coming from coring (~40EPS). What about the US normalized demand? That's where probably the most relevant upside will come from in the future, but I really think it doesn't matter that much at current valuation, because if you add let's say current EPS of 200 (adjusted reported) + 50 (R&D adjustment) + 40 (coring) we are talking about ~300 owner's earnings per share (15x earnings valuation) without taking a US recovery into account. Also, in the long term, if there is a decrease of research spending coming from the US, it means the US is shrinking while other countries will fill the gap.
I believe there's a mistake in the Geotek EBIT numbers. I am making the same mistake. When Judges acquired Geotek (check JUDGES SCIENTIFIC INTERIM RESULTS 30 JUNE 2022), it paid 45mn and there was a 35mn earn-out (half in cash, half in stock) conditioned to Geotek achieving 11.4bn EBIT in 2022. When you check later in June 2023, they released news saying the company achieved full earn-out because they achieved more than 11.4bn EBIT that year. That's much more from what we can see in the accounts.
I believe I found the problem. We are actually using individual statements, because those companies could hide consolidated statements due to Section 383 from Companies Act 2006. In 90% of the time these companies chose to publish only individual statements, so we don't know their consolidated numbers.
If this is true, it explains why management appears comfortable with Geotek, acquiring recently the remaining 18% from Geotek do Brasil Ltda.
Do you mean GBP7m for 2024? I am using Companies House numbers (you can find Geotek’s financials at UK Companies House. Not 100% accurate as they may have made some intercompany transactions but directionally correct and consistent with no coring expedition). I don’t explicitly show 2025 Geotek. Had Geotek actually not had the coring expeditino in 2023 (and 2024 instead) technically it may not have paid out that earn-out I believe.
I am using Companies House as well. Section 383 from Companies Act 2006 allowed Geotek Limited and Geotek Coring Limited to not to disclose consolidated financials, only individual financials, showing us holding's financials only. If their subsidiaries pay a dividend we can see it coming in, if it holds profits inside themselves we can't see anything. We are probably underestimating Geotek's EBIT and profit. We can't see a 11.4mn EBIT in 2022 for example, but it happened.
Thanks for the detailed comments. As a high-level, yes, they are clearly under-earning, its just a matter of how much. The coring expedition issues are probably worse than what they originally thought when they acquired it so that has to be acknowledged and I'm reluctant to capitalize some R&D unless I start seeing real growth acceleration.
I do agree on management. I believe David has been very thoughtful on succession and I like their new management. I was disappointed that Mark decided to retire but it is clear that they have a strong team. Its just a matter of getting through this cycle which everyone thought would last 1 year but may last 3 or even 4 years confounded by Geotek volatility.
Thank you for your excelent detailed write-up. I learned a lot.
I would also add the possibility that the company under the new management could do as well as or even better than David did, because they have learned from other great companies + David. I think David chose them very well. Just by listening to them speak during earnings calls, it is easy to tell they are of extremely high quality.
Another point I wanted to touch on is whether their adjusted EPS is the proper metric to calculate owner's earnings, because (1) it doesn't take SBC into account (-1.4mn) and (2) it doesn't consider that some of the 10.2mn R&D is actually growth Capex (if you consider let's say 50%, then 5.1mn is growth capex which should be considered into owner's earnings). Those two factors combined add ~50 to EPS, depending on your assumptions.
The main point is what normalized earnings are. It is difficult for us to say whether it would be a 200 (+50) EPS or 300 (+50) EPS. My best guess is based on what management said about it during the Full Year Presentation March 2026 video (between 57:40 - 1:00:15) where the 3 of them said that their "2026 guidance was 200-250 EPS based on non US recovery and no Geotek coring expedition, but they would definitely not consider it as the new normal.". How to come up with what would coring add in a normal situation? I would say if they paid 80mn for a 7x EBIT and coring is roughly 1/3 of that, we may be talking about 3.8mn EBIT coming from coring (~40EPS). What about the US normalized demand? That's where probably the most relevant upside will come from in the future, but I really think it doesn't matter that much at current valuation, because if you add let's say current EPS of 200 (adjusted reported) + 50 (R&D adjustment) + 40 (coring) we are talking about ~300 owner's earnings per share (15x earnings valuation) without taking a US recovery into account. Also, in the long term, if there is a decrease of research spending coming from the US, it means the US is shrinking while other countries will fill the gap.
I believe there's a mistake in the Geotek EBIT numbers. I am making the same mistake. When Judges acquired Geotek (check JUDGES SCIENTIFIC INTERIM RESULTS 30 JUNE 2022), it paid 45mn and there was a 35mn earn-out (half in cash, half in stock) conditioned to Geotek achieving 11.4bn EBIT in 2022. When you check later in June 2023, they released news saying the company achieved full earn-out because they achieved more than 11.4bn EBIT that year. That's much more from what we can see in the accounts.
I believe I found the problem. We are actually using individual statements, because those companies could hide consolidated statements due to Section 383 from Companies Act 2006. In 90% of the time these companies chose to publish only individual statements, so we don't know their consolidated numbers.
If this is true, it explains why management appears comfortable with Geotek, acquiring recently the remaining 18% from Geotek do Brasil Ltda.
Do you mean GBP7m for 2024? I am using Companies House numbers (you can find Geotek’s financials at UK Companies House. Not 100% accurate as they may have made some intercompany transactions but directionally correct and consistent with no coring expedition). I don’t explicitly show 2025 Geotek. Had Geotek actually not had the coring expeditino in 2023 (and 2024 instead) technically it may not have paid out that earn-out I believe.
I am using Companies House as well. Section 383 from Companies Act 2006 allowed Geotek Limited and Geotek Coring Limited to not to disclose consolidated financials, only individual financials, showing us holding's financials only. If their subsidiaries pay a dividend we can see it coming in, if it holds profits inside themselves we can't see anything. We are probably underestimating Geotek's EBIT and profit. We can't see a 11.4mn EBIT in 2022 for example, but it happened.