RY 180.75 0.3776% SHOP 170.81 2.5763% TD 102.38 0.2448% ENB 61.7 -0.532% BN 92.05 0.0217% BAM 85.94 -0.2785% TRI 279.96 -0.1249% BMO 156.51 0.5331% CSU 4876.3501 0.6311% CP 104.75 0.8569%
RY 180.75 0.3776% SHOP 170.81 2.5763% TD 102.38 0.2448% ENB 61.7 -0.532% BN 92.05 0.0217% BAM 85.94 -0.2785% TRI 279.96 -0.1249% BMO 156.51 0.5331% CSU 4876.3501 0.6311% CP 104.75 0.8569%

small-cap

One Small cap Stocks to Punt on – MDI

Oct 13, 2021 | Team Kalkine
One Small cap Stocks to Punt on – MDI

 

Major Drilling Group International Inc (TSX: MDI) is engaged in the business of contract drilling, and it provides services to companies that are involved in mining and mineral exploration. It maintains field operations and offices in many countries across continents.

Key highlights

  • Industry upturn gaining momentum: The company is delighted with its performance this quarter, as its strategy of having rigs and inventory available for quick deployment to clients paid off. As the cyclical recovery progresses, the group continues to experience increased activity in the industry. North America, where gold projects are still the major engine of activity, had significant regional growth during the quarter.
  • Robust financial performance: The company reported its highest ever quarterly revenue in Q1 2022, at CAD 150.9 million, which increased 69% compared to CAD 89.4 million recorded in the same quarter last year. The gross margin also saw an elevated level at 20.1% compared to 16.9% in the previous corresponding period. The group generated an EBITDA of CAD 24.2 million compared to CAD 13.9 million in pcp.

Source: Company

  • McKay acquisition delivering great results: McKay Drilling, a major specialized drilling contractor located in Perth, Australia, was acquired by the Company, provided a strong established presence in an important growing area. The firm also included income from McKay Drilling ("McKay") in its most recent financial reports. While the integration is still in its early phases, the company feels it is progressing extremely well, and operations are operating well in a highly active market.
  • Strong financial position: The Company’s financial position remains strong and the balance sheet flexible, allowing it to continue to deploy technologies that aid in the ongoing development. It reported total liquidity of CAD 82 million comprising of CAD 27 million of cash and rest under undrawn credit facilities. Moreover, its Debt/Equity ratio stood lower compared to industry median at 0.18x.

Source: Company 

Financial overview of Q1 2022 (in thousands of Canadian dollar)

Source: Company 

  • In Q1 2022, the company reported healthy growth of 69% in its revenue at CAD 150.99 million compared to CAD 89.4 million in pcp as the industry gaining momentum.
  • The gross profit almost doubled to CAD 30.3 million, against CAD 15.1 million in the previous corresponding period.
  • Although it reported higher operating expenses, still it managed to post healthy earnings before income tax at CAD 13.7 million compared to CAD 3.3 million in pcp.
  • Net income in the reported period stood at CAD 11.0 million compared to CAD 2.1 million in pcp.

Risks associated with investment

The shortage of experienced drill crews could put pressure on labor costs and productivity, especially in the Company’s most active markets, which could affect the company’s operating margin as well as its bottom line. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The company has showcased some outstanding financial numbers along with growth in topline as well as in bottom line. The demand for the Company’s services remains strong, and more work has been secured for the upcoming quarter with more favorable terms and prices, which is a significant plus. Also, it expects to improve margins going forward, although it will be somewhat offset by cost inflation for supplies and labor. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 8.72 on October 12, 2020.

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

Technical Analysis Summary

One-Year Technical Price Chart (as on October 12, 2021). Source: REFINITIV, Analysis by Kalkine Group

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


Disclaimer

 

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