Black Diamond Group Limited

Black Diamond (TSX: BDI) is a specialty rentals and industrial services Company with two operating business units - Modular Space Solutions (MSS) and Workforce Solutions (WFS). The company operates in Canada, the United States, and Australia.

Why Investor’s Should Book Profit?

• Lower margin profile v/s Industry: In Q2 2021, the company failed on maintaining its pace and witnessed lower performance across operating margin matrix, which exhibits the pressure on company.
• Weak liquidity profile: In Q2 2021, the company's current ratio stood at 1.13x against the industry median of 1.39x. The lower ratio against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Stretched valuations: BDI shares are available at an NTM EV/EBITDA multiple of 6.2x compared to the industry (Homebuilding & Construction Supplies) average of 4.0x. While on NTM Price/ Earnings multiple, it is trading at 19.1x compared to the industry average of 10.2x. This implies that the shares are overvalued against the industry.
• Long cash cycle days: The company’s Cash Cycle (Days) is increasing compared to the previous sequential quarter, implying the company is taking more days to convert its inventory to cash. In Q2 2021, its Cash Cycle stood at 68.6 days against 67 days in Q1 2021. Also compared to the industry median, this is very high, which is at 25.6 days only.
• Trading near the upper band of Bollinger Band®: Recently, the stock witnessed a healthy rally on the daily price chart and has moved close to upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology Illustrative: EV/ Sales 

Stock recommendation

Recently, the company posted healthy growth in its Q2 2021 financial numbers where its revenue and adjusted EBITDA were up 85% and 36% from the Comparative Quarter, respectively. However, it clocked lower margins against the industry, which reflects pressure on it. Furthermore, the company's liquidity ratio is in poor shape, and it holds higher Cash Cycle (Days), implying the company takes more days to convert its inventory to cash. Even the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 4.15 on October 19, 2021.

Gear Energy Ltd.

Gear Energy Ltd (TSX: GXE) is engaged in the business of acquiring, developing, and holding interests in petroleum and natural gas properties and assets. Its oil-focused operations are located in three core areas: Lloydminster Heavy Oil, Central Alberta Light/Medium Oil, and Southeast Saskatchewan Light Oil. 

Why Should Investors Book Profit?

• Increasing uncertainties: The resurgence of Delta variant cases has raised a lot of questions, and it might have an influence on the company's operations and cash flows as the government may tighten some mandatory lockdowns to combat the spread. This could create a volatility in the price and demand of the crude oil.
• Lower margin profile v/s Industry: In Q2 2021, the company failed on maintaining its pace and witnessed lower performance under operating margin matrix, consisting of operating margin and net margin, which exhibits the pressure on company.
• Weak liquidity profile: In Q2 2021, the company's quick ratio was 0.38x compared to the industry median of 0.81x, while the current ratio stood at 0.55x against the industry median of 0.97x. These lower ratios against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Exhausted technical indicators: Recently, the stock witnessed a healthy rally on the daily price chart and has formed the rounding top pattern where the price faced resistance at horizontal trendline, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The volumes averaged 5,440 and 5,388 BOE per day for the quarter and six months ended June 30, 2021, compared to 2,749 and 4,746 BOE per day in the same periods in 2020, resulting in higher revenue and lower net losses. However, it failed to attain a healthy margin profile in comparison to the industry, indicating that it is under pressure. Furthermore, the resurgence of Delta variant cases is causing a lot of uncertainty, which might affect the company's operations and cash flows if the government imposes forced lockdowns to prevent the spread. Additionally, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 0.91 on October 19, 2021.

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

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.