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 updates:

• Positive sectoral scenario: The company foresees substantial growth opportunities within the North American non-destructive excavation market due to rising demand for the maintenance, upgrade and expansion of the critical infrastructures due to the ongoing proposed infrastructure plans taken by the Government. This is likely to boost the demand for non-destructive excavating services and the company is highly poised to take advantage of the growing opportunities.

• Strong profit margin: The company commands higher margins than the industry median, which indicates higher operational efficiencies. Notably, during Q3FY21, the group reported its EBITDA margin and operating margin of 21.1% and 10.6%, respectively, higher than the industry median of 9.8% and 6.5%, respectively. Moreover, the company reported its net margin of 7.2%, as compared to the industry median of 4.6%.

• Higher Dividend payment: The company reported an increase in its dividend payment of CAD 16.1 million in 9MFY21, as compared to CAD 15.4 million in pcp. This is impressive as most of the companies are lowering its dividend distribution in order to retain liquidity.
  

Risks: The company reported an increase in input costs which has dampen the company’s profitability, and the continuation of the above trend remains a major challenge for the group. 

 Q3FY21 Income Statement Highlights: (In thousands of CAD)

Q3FY21 Income Statement Highlights (Source: Company Report)

• BDGI announces its quarterly result, wherein the company posted its revenue of CAD 171.7 million, higher CAD 156.8 million in pcp. The growth was primarily due to higher Hydrovac service revenue supported by improved market activity primarily from the non-residential construction segment.
• Gross profit stood at CAD 46.9 million, declined from CAD 56.1 million in pcp, primarily due to a significantly higher direct cost (CAD 124.7 million v/s CAD 100.6 million in pcp).
• The quarter was marked by an increase in general and administrative expense, while finance cost was lower than the previous corresponding period (pcp).
• The group reported a net profit of CAD 12.4 million, lower than the net profit of CAD 16.1 million in pcp.
  

Valuation Methodolgy(Illustrative) : Price to Earnings

Analysis by Kalkine Group 

Stock Recommendation:

The company has a prudent capital management and reported a D/E ratio of 0.58x in Q3FY21, as compared to the industry median of 0.61x. An improved debt to equity level is a key positive and indicates better financial flexibility. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like NFI Group Inc, Concrete Pumping Holdings Inc etc. Considering the aforesaid facts, we recommend a 'Speculative Buy' rating on the stock of BDGI at the last traded price of CAD 27.85 on January 24, 2022.

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

Technical Analysis Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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