ClearStream Energy Services Inc. (TSX: CSM) is a fully integrated provider of upstream, midstream, and downstream production services, which includes maintenance and turnarounds, facilities construction, welding and fabrication and environmental services with locations across Western Canada.

Key Updates:

• Reported higher net loss: Despite the increase in top-line in Q1FY22, the company failed to retain the momentum and posted a higher net loss of CAD 7.8 million, as compared to a net loss of CAD 7.6 million in pcp. This is primarily due to higher input costs largely due to the ongoing investments being made to support the Company's enterprise systems and digital strategy. Continuation of the trend would lead to weak profitability and cash flows.

• Weak Profitability margins: In Q1FY22, the company reported its gross margin and EBITDA margin of 8.9%, and 1.5%, respectively, as compared to the industry median of 25.8% and 13.4%, respectively. This indicates poor expense management and remains a key concern. Moreover, the company reported a negative net margin of 7.1% in Q1FY22, as compared to the industry median of 1.1%.
  

• Lengthy Cash conversion period: In Q1FY22, the company reported a cash conversion period of 96.2 days, higher than the industry median of 74 days. A higher cash conversion period denotes that the company is taking higher time to convert its investments to cash flows.

Stock Recommendation:

During Q1FY22, the company reported a lower quick ratio and current ratio of 1.37x and 1.43x, respectively, lower than the industry median of 1.58x and 2.00x, respectively. This indicates that the company has higher short-term liabilities, as compared to its current assets. The stock of CSM tumbled ~28% and ~41% in the last three months and one-year respectively on account of profit booking. Moreover, the stock of CSM is available at an EV to EBITDA multiples of 27.8x on TTM basis, considerably higher than industry (Energy) median of 5.5x. Hence, considering the aforesaid facts, we give a ‘Watch’ stance on the stock of CSM at the last closing price of CAD 0.05 on May 24, 2022.

One-Year Technical Price Chart (as of May 24, 2022). Analysis by Kalkine Group

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Technical Analysis Summary

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