Badger Daylighting Ltd.

Badger Daylighting Ltd. (TSX: BAD) is a Canada-based company that provides non-destructive hydrovac excavation services based on its core technology, the Badger Hydrovac System.

Key Updates:

• Sign of Sectoral Revival: During the first nine months of FY20, the performance of the construction sector remained topsy turvy due to restrictions imposed on account of COVID 19 pandemic coupled with lower construction activities. However, the sector witnessed a gradual revival from the fourth quarter of FY20, and hence BAD started to hire staffs for sales and operation segments, which is a key positive. The management expects strong market recovery in 2021 from the COVID-19 pandemic and is planning for the traditional summer construction season. The company reported improved bidding activities during the first quarter of FY21, which would support the company’s performance in the coming quarters.

• Better than Industry Margins: Despite a tepid FY20 performance, the group has maintained its margin profile and beat the industry median. Gross margin and EBITDA margin in FY20 stood at 28.4% and 19.7%, respectively, as compared to the industry median of 18.8% and 8.9%, respectively. Moreover, the net margin stood at 4.4% in FY20, v/s the industry median of 2.9%. The above indicates efficient cost management and prudent working capital management.

• Management Update: On March 11, 2021, the company announced the planned retirement of Garry Mihaichuk and the appointment of Stephen Jones to the Board of Directors. 

FY20 Financial Highlights:

• BAD announced its full-year result, wherein the company posted revenue of CAD 558.627 million, which stood lower than CAD 654.282 million in FY19. The decrease was primarily attributable to the impact of COVID-19 on both general economic and construction activity levels coupled with reduced oil and gas customer demand in certain U.S. and Western Canada markets.
• Gross profit stood at CAD 164.340 million as compared to CAD 201.018 million in FY19. The decline was due to a lower income, partially offset by a higher direct cost (CAD 394.287 million v/s CAD 453.264 million in FY19).
• Operating profit came significantly lower at CAD 41.159 million, as compared to CAD 83.883 million in FY19. The period was marked by lower share-based plans (CAD 8.877 million v/s CAD 11.039 million in FY19), slightly lower general and administrative costs (CAD 41.512 million v/s CAD 42.572 million in FY19), while depreciation and amortization expense stood higher at CAD 72.792 million v/s CAD 63.524 million in FY19.
• Net profit declined to CAD 24.749 million v/s CAD 59.732 million in the previous year.        

FY20 Income Statement Highlights (Source: Compay Report)

Risks: 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.

Stock Recommendation:

The revival of the construction sector has resulted in an improved cash flow in FY20 (CAD 139.250 million in FY20 v/s CAD 113.406 million in FY19), which is impressive. Moreover, the company is highly poised to take advantage of the opportunities arriving from the US markets. Meanwhile, the stock of BAD jumped ~48% and ~69% in the last nine months and one year, respectively. On the valuation front, the stock is trading at a forward EV to EBITDA multiple of 9.5x, which is more or less in line with the industry (Construction & Engineering) median of 9.0x. Hence, we recommend a ‘Watch’ stance on the stock at the closing price of USD 41.75 on April 12, 2021 and advise investors to wait for a better entry point.

BAD daily technical chart (as on April 12, 2021). Source: Refinitiv

Crestview Exploration Inc

Crestview Exploration Inc (CSE: CRS) is engaged in the mineral exploration and the 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:

• Private placement update: On March 23, the company announced that it had closed a non-brokered private placement, wherein it issued 349,765 share units at CAD 0.85 per unit for gross proceeds of CAD 297,300.25. Each unit consists of one common share and one and half share purchase warrant. Each warrant is exercisable into one common share at CAD 1.25 for a two-year term. The above funds would be used for the initial exploration purpose related to the acquisition of the Cimarron project in Nye County, NV.

• Drilling Highlights: The company would conduct drilling activities at the recently acquired Cimarron gold prospect. According to the Management, the location has the potential gold resource of 50,000 oz, which is a key positive for the company. The details of drilling activities are summed up as follows:
  • The phase 1 drilling would focus on twinning between eight and ten holes spread throughout the main resource area of ~5,000.
  • The other is related to validate historical data, and the company would begin the process by twinning a spread of the historical RC drill holes in the resource area with HQ core drill holes.

FY20 Financial Highlights:

• Crestview Exploration Inc. announced its full-year result, wherein the company posted a higher operating loss of CAD 0.43 million v/s, a loss of CAD 0.28 million in FY19.
• The period was marked by higher professional fees (CAD 0.23 million v/s CAD 0.19 million in FY19), additional Marketing and Investment Promotion costs amounting to CAD 0.060 million, higher filing fees (CAD 0.043 million v/s CAD 0.019 million in FY19), the inclusion of director fees CAD 0.042 million and higher travel and insurance costs.
• Net loss was recorded at CAD 0.510 million v/s a net loss of CAD 0.28 million in the previous year.
• Cash and cash equivalent, at the end of November 30, 2020, stood at CAD 0.005 million, while total assets were recorded at CAD 0.64 million.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The company is conducting drilling activities and is yet to report any positive outcome. Negative outcome from the drilling activities would hamper the business prospect.

Stock Recommendation:

The company has started new drilling activities across the newly acquired assets which has a potential gold resource of 50,000 oz across two major areas. However, the company is yet to report an income, while the company reported higher input cost in the recent past, which has resulted in a higher deficit. However, the company is in exploration stage and the discovery of the mineral reserves is not certain. Hence, we prefer to remain on the sidelines. The stock fell from its 52-weeks high of CAD 2.53 and corrected ~24% and ~43% in the last one week and one month, respectively. Hence, we suggest an ‘Avoid’ recommendation on the stock at the closing price of CAD 0.58 on April 12, 2021.

One-year Price Chart (as on April 12, 2021). Source: Refinitiv (Thomson Reuters)

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.