Badger Infrastructure Solutions Ltd

Badger Infrastructure Solutions Ltd (TSX: BDGI) is North America's provider of non-destructive excavating services. Its key technology is the Badger Hydrovac, which is used primarily for safe excavation around critical infrastructure and in congested underground conditions.

Key highlights 

• Robust guidance: The company is committed to achieve profitable, long-term, and sustainable growth. It plans to increase sales in the United States and grow Adjusted EBITDA by 15% on an average over the following 3-5 years. It also aims for a 28% to 29% yearly Adjusted EBITDA margin.

• Prudent working capital management: The company is managing its working capital efficiently. Its working capital stood at CAD 32.1 million as at March 31, 2021, compared with CAD 70.5 million as at December 31, 2020. It brought down its receivables at CAD 118 million and days sales outstanding at 77 days in the reported period, compared to Q1 2020. A reduced days sales outstanding means that the company is encashing its receivables in a less span of time, which is a key positive.

Source: Company

• Rising cash flow from operating activities: The company reported its cash flow from operating activities in Q1 2021, at CAD 35.8 million, compared with CAD 25.8 million in the prior year’s comparative quarter. The increase in cash flow from operating activities resulted from its ongoing efforts to improve the timely collection of accounts receivables.

• Increase in Dividend distribution: Recently the Board of Directors of the company approved a 5% increase in the dividend to CAD 0.63 per common share on an annualized basis. It declared a monthly dividend of CAD 0.0525, payable on June 15,2021. We believe an increase in the dividend distribution reflects the strong future cash flows, which is admirable.
  

Financial overview of Q1 2021 – (Expressed in thousands of Canadian Dollars)

Source: Company

• In Q1 2021, the company reported lower revenue at CAD 108.4 million, against CAD 136.6 million in the previous corresponding period. The decline in the revenue was mainly due to shutdowns related to COVID-19, severe winter storms and reduced oil and gas customer demand.
• The company posted gross profit of CAD 16.9 million, against CAD 30.2 million in the previous corresponding period. The decline in gross profit was mainly due to lower revenue and higher direct cost which stood at 84.3% of revenue compared to 77.8% in the previous corresponding period.
• Operating loss stood at CAD 17.6 million, against a profit of CAD 9.0 million in pcp.
• The company posted comprehensive loss of CAD 17.4 million compared to a profit of CAD 31.9 million in pcp, primarily due to above stated reasons, partially offset by income tax recovery.
  

Risks associated with investment

Further restrictions by the government might lead to delay in project execution. Moreover, liquidity crunch in the overall economy may impact the trade and other collections. Other risk involved with the company is of foreign exchange risk as it derives significant revenues from the US. 

Valuation Methodology (Illustrative): EV to EBITDA 

Stock recommendation

The company continues to position its operations for the summer construction season and the anticipated market rebound in 2021 throughout the first quarter. Extended holiday workplace shutdowns in January and harsh winter weather in February lowered activity levels. In March, the revenue run-rate improved dramatically as the reopening of US economies increased as a result of higher vaccination rates. Furthermore, as the North American economy, particularly the United States, reopens and recovers from the COVID-19 pandemic, the company is seeing early signs of a significant market rebound in 2021. In addition, the firm plans to increase its sales in the United States over the next 3 to 5 years, with annualized Adjusted EBITDA margins of 28% to 29%.  The company also increased its dividend distribution. Based on technical analysis, the stock has support at CAD 32.5 level. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 39.06 on June 11, 2021. We have considered Boyd Group Services Inc, NFI Group Inc, Ameresco Inc, as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

One-Year Price Chart (as on June 11, 2021). Source: Analysis by Kalkine Group

Martinrea International Inc

Martinrea International Inc (TSX: MRE) is a Canada based manufacturer of metal parts and fluid management systems. Its products are used primarily in the automotive sector by most vehicle manufacturers. Some of their products are aluminum engine blocks, specialized products, suspensions, chassis modules and components, and fluid management systems for fuel, power steering and brake fluids.

Key highlights

• Strong growth led by the European region: Despite the difficult moment for the automobile industry due to the global pandemic, the firm showed resilience in Q1 2021, growing in every region. European region performed very well with a 58.9% increase in sales to CAD 254.0 million, compared to CAD 159.8 million in the previous equivalent quarter. The launch of new programs during or after the first quarter of 2020, mainly with Volvo and Ford; and greater production volumes on certain platforms, mostly with Daimler and Jaguar Land Rover, led to a rise in sales.

Source: Company

• Increasing strategic investment: The Company possessed 35.04 million common shares of NanoXplore Inc. as of March 31, 2021, representing a 22.2% equity stake in NanoXplore, publicly traded on the TSX Venture Exchange under the ticker code GRA. It is a graphene powder manufacturer and supplier for industrial sectors, offering various graphene-based solutions to customers. The stock market value of the Company's NanoXplore shares was CAD 112.84 million as of March 31, 2021.
  

• Venturing into electric vehicle battery production: The Company recently formed a 50/50 joint venture with NanoXplore called VoltaXplore to develop and build graphene-enhanced electric car batteries. We believe the company has unique technology that has the potential to provide a solution for producing electric car batteries that will assist governments and automakers in meeting ambitious objectives for electric vehicle production.

Financial overview of Q1 2021 (in thousands of Canadian dollars)

Source: Company

• The Company’s consolidated sales in Q1 2021 increased by CAD 124.4 million or 14.3% to CAD 997.1 million compared to CAD 872.7 million in the previous corresponding period. The group witnessed a healthy performance from all geographies.
• The group reported a gross profit of CAD 120.8 million compared to CAD 120.3 million. Gross margin as a % of sales decreased to 12.1% V/s 13.8% in pcp, mainly due to an increase in aluminum raw material cost, which increased the cost of sales.
• Operating income for the period stood at CAD 47.4 million, against CAD 49.2 million in pcp.
• The Company posted a higher net income of CAD 38.7 million in Q1 2021, against CAD 28.9 million in pcp. The higher net income was mainly supported by higher revenues and gain on dilution of investment in associate worth CAD 7.8 million.
  

Risks associated with investment

The company is prone to many risks associated with the nature of its business which could hamper the performance of the company. Some of these risks include fall in demand from automobile manufactures, disruptions from the supply chain, any technological change, increased prices of raw materials and commodities, etc.

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

Some short-term headwinds hampered the company's Q1 2021 performance, including an industry-wide semiconductor scarcity, a temporary lag in the pricing pass-through of increased aluminium costs, and a developing third wave of COVID-19 posing further short-term issues in some locations. Despite this, it reported a good set of figures, with sales increasing 14.3% and net income increasing, which is commendable. Recently, the business launched VoltaXplore, a joint venture with NanoXplore to develop and create graphene-enhanced electric car batteries. As the demand for electric vehicles grows, we anticipate that this segment would provide new avenues for cash flow. Based on technical analysis, the stock has support at CAD 11.4 level. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 13.87 as on June 11, 2021. We have considered Abc Technologies Holdings Inc, Linamar Corp, Superior Industries International Inc, etc. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level. 

One-Year Technical Price Chart (as on June 11, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Crestview Exploration Inc

Crestview Exploration Inc (CSE: CRS) is engaged in the mineral exploration and acquisition of mineral property assets in North America. The company is involved in the development of the Rock Creek Project in north-central Nevada, USA.

Key Highlights:

• Bearish Technical Indicators: The CRS stock is trading is a strong downward trend, as it has corrected from CAD 2.50 level to CAD 0.49 level. On the weekly price chart, the leading technical indicator Relative Strength Index (RSI) is hovering in a neutral zone at 44.05 and not showing any sign of trend reversal. Additionally, the stock closed below the short-term and medium-term simple moving averages of 21-days, and 50-days SMA, indicating a bearish price trend. Moreover, these two SMAs is likely to act as major resistance in the near term.

Weekly Technical Chart, Analysis by Kalkine Group

• Drilling Update: The company updated on its phase 1 drilling on its Cimarron Gold project, wherein the group announced the completion of 1,684 feet of the 4,500 feet of drilling, wherein the company executed three core drill holes and is focusing on the fourth one. With the above drilling activities, the group testing the expansion potential at depth.

• Significantly Higher Cash used by Operating Activities: The group reported a surge in its cash used by Operating activities due to the absence of any major income and drastic surge in expenses. Notably, cash used in operating activities surged to CAD 0.389 million in Q1FY21, compared to CAD 0.061 million in pcp.

Q1FY21 Income Statement Highlights

• CRS announced its quarterly result, wherein the group posted a higher operating loss of CAD 0.34 million, widened from a loss of CAD 0.07 million in pcp. The quarter reported a surge in the marketing and the promotion activity (CAD 0.24 million v/s CAD 0.007 million in Q1FY20), coupled with higher professional fees and director fees.
• The group reported higher net loss of CAD 0.336 million, as compared to CAD 0.071 million in Q1FY20.
• The company reported a cash and cash equivalent of CAD 1.520 million, while the total shareholders deficit is recorded at CAD 1.623 million.

Source: Company Report

Risks: The company is in exploration stage and conduction several drilling activities. Any negative outcome of these activities would affect the group’s prospect.

Stock Recommendation:

The group has made several drilling activities in the recent past and is yet to report a positive outcome from its operations. The group is in exploration stage and yet to report revenue. Moreover, due to the lack of income generation, funding of the operation is likely to remain under pressure. Recently, CRS made a non-brokered private placement by issuing 6,969,968 share units for gross proceeds of CAD 2.09 million. The stock of CRS tumbled ~51% and ~24% in the last three months and six months, respectively. Due to the absence of any stable income coupled with the constant pile-up of quarterly losses, we prefer to remain on the sidelines. Hence, we recommend an ‘Avoid’ rating on the stock at last closing price of CAD 0.495 on June 11, 2021.

One-Year Price Chart (as on June 11, 2021). Source: Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.