Western Energy Services Corp. (TSX: WRG) operates as an oilfield service industry in Canada and the United States of America. The company functions its drilling services through two segments namely, Contract drilling and Production services. 

Key Updates:

• Highly leveraged Balance-sheet: In FY21, the company reported its debt to equity ratio of 1.30x, which is significantly higher than the industry median of 0.39x. Moreover, the company’s long-term debt in terms of total capital stood higher at 53.1% in FY21, compared to the industry median of 18.7%. This indicates that the company has higher balance sheet risk associated with its operations.
• Depressed Technical: On a daily price chart the stock price tumbled from its recent highs of CAD 0.50 levels and closed below is crucial support level of 50-days and 200-days simple moving averages, indicating a strong down trend. Moreover, the stock corrected ~33% and ~41% in the last one month and nine months, respectively, generating negative return.

One-Year Technical Price Chart (as on April 06, 2022). Analysis by Kalkine Group

• Weak profitability margins: In FY21, the company reported its gross margin and EBITDA margin of 19.6% and 10.5%, respectively, as compared to the industry median of 24.3% and 13,3%, respectively. Moreover, the company reported a negative operating margin of 14.6% in FY21, as compared to the industry median of 0.2%. These indicates that the company is struggling with its input costs and remains a key concern.

Stock Recommendation:

In FY21, the company’s quick ratio and current ratio stood at 0.96x and 1.06x, respectively, as compared to the industry median of 1.58x and 1.91x, respectively. This indicates weak working capital management as the company is unable to manage its current liabilities with short-term assets. Moreover, the stock of WRG is available at an EV to EBITDA multiples of 10.7x on TTM basis, as compared to the industry (Energy) median of 5.7x. Considering the aforesaid facts, we recommend a ‘Watch’ stance on the stock of WRG at the last closing market price of CAD 0.24 on April 06, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 06, 2022). Analysis by Kalkine Group

Technical Analysis Summary

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