Badger Infrastructure Solutions Ltd

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 highlights 

• Improved revenue per truck per month (RPT): “Revenue per truck per month” (RPT) is a measure of hydrovac fleet utilization. RPT is calculated by taking hydrovac revenue divided by the number of average trucks for the period and further divided by the number of months in the respective period. During Q2 FY21, the total Hydrovac revenue rose to CAD 109.69 million v/s CAD 98.45 million in the pcp. Additionally, the total RPT rose to CAD 26,633 v/s CAD 23,458. Although the average hydrovacs count declined to 1,373 v/s 1,399 in Q2 FY20.
  

• Robust guidance: The company is committed to achieving profitable, long-term, and sustainable growth. It plans to increase sales in the United States and grow Adjusted EBITDA by 15% on average over the following 3-5 years. It also aims for a 28% to 29% yearly Adjusted EBITDA margin along with revenue per truck per month over CAD 30,000 (mixed currency).

• Improving cash collection cycle: As of June 30, 2021, 88% of Badger’s trade receivables were aged 90 days or less compared with 77% on December 31, 2020. The Company continues to actively manage its receivables portfolio and drive further improvements in all aspects of the cash collection cycle. The implementation of supplemental credit and collections processes has resulted in improved accounts receivable collection metrics.
  

• Healthy liquidity: The company maintained a decent liquidity position with over CAD 300 million in cash and credit facility capacity supported by continued improvements in working capital and collection of aged receivables.
  

Financial overview of Q2 2021 (In thousands of CAD)

Source: Company 

• In Q2 2021, the company reported revenue of CAD 135.6 million against CAD 134.4 million in the previous corresponding period, an increase of CAD 1.1 million mainly due to increased US operations partially offset by slight decline in revenue from the Canadian operations.
• The company posted gross profit of CAD 26.0 million, against CAD 46.4 million in pcp. The decline in gross profit was mainly due to higher direct cost which stood at 80.8% of revenue compared to 65.5% in the previous corresponding period.
• Operating loss stood at CAD 1.4 million, against a profit of CAD 7.1 million in pcp.
• The company posted net loss of CAD 2.8 million compared to a profit of CAD 1.7 million in pcp, primarily due to above stated reasons, partially offset by lower finance expense and income tax recovery.

Risks associated with investment

Further restrictions by the government might lead to delay in project execution. Moreover, liquidity crunch in the overall economy may impact the trade and other collections. Other risk involved with the company is of foreign exchange risk as it derives significant revenues from the US. 

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

The company reported improvement in its second quarter revenue compared to Q2 2020 and from the sequential quarter, with some regions trending towards 2019 levels. However, the revenue recovery has been uneven regionally and from month to month. As a result, its direct costs ramp up to support anticipated activity for the summer construction season, outpaced revenue growth and compressed gross margins in the quarter. Furthermore, the company continues to position its operations to address both the near-term market recovery and the longer-term market opportunity that it sees in the North American non-destructive excavation market. In addition, the firm plans to increase its sales in the United States over the next 3 to 5 years, with annualized Adjusted EBITDA margins of 28% – 29%. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 33.78 on August 10, 2021. We have considered Boyd Group Services Inc, Black Diamond Group Ltd, Concrete Pumping Holdings Inc, as the peer group for the comparison.

*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 August 10, 2021). Source: REFINITIV, Analysis by Kalkine Group

Premier Health of America Inc

Premier Health of America Inc (TSXV: PHA) is a Canadian Health technology company that provides a comprehensive range of staffing and outsourced services solutions for healthcare needs to governments, corporations, and individuals through its proprietary platform.

Key Highlights 

• Entered into a JV with Rekruti Inc: The company has entered into a technology joint venture agreement with Rekruti Inc., a Montreal based technology company. The JV consists of creating and operating a cross-Canada healthcare jobs marketplace open to all Canadian healthcare organizations and staffing agencies. It aims to connect healthcare employers to qualified candidates through AI based predictive analysis, to provide current information on candidates including work history, licenses and certification, and to facilitate interaction with mobile messaging tools.

• Robust performance: In comparison to the previous fiscal year, the first semester of the current fiscal year has demonstrated a spectacular performance. The company's consolidated revenues for the first two quarters ending March 31, 2021, were CAD 30.4 million, up from CAD 8.3 million in the previous similar period, indicating a 266% increase. EBITDA increased from CAD 0.9 million in pcp to CAD 3.1 million. Organic growth and the acquisition of Code Bleu were the major drivers of revenue and EBITDA growth in the first two quarters of 2021.
  

• Focused on technology development: The group's growth plan revolves around technology, and it aims to spend a minimum of 2% of its annual revenues on maintaining and developing new technologies. To keep current, new features and apps are released on a regular basis. Furthermore, the firm believes that the newly implemented features would help both the nurses and the company enhance the invoicing function. On an annual basis, the organization estimates that this would result in a revenue increase of around 2%.

• Acquired Solutions Nursing: On March 17, 2021, the company acquired Solutions Nursing L.F.C. Inc. and Formation Solutions Nursing Inc. for a total of CAD 2.7 million. Solutions Nursing reported revenues of about CAD 4.5 million, an EBITDA of CAD 0.61 million, and a net income of CAD 0.51 million for the fiscal year ended August 31, 2020. The purchase strengthens the market position of the group's Nordik business in Canada's northern regions. Additionally, as its activities are moved and integrated on its platform, the firm anticipates this business unit to create significant organic growth over the next two years.
  

Financial overview of Q2 2021 (in Canadian dollars)

Source: Company 

• In Q2 2021, the company’s revenue grew to CAD 17.0 million against CAD 4.9 million in pcp, mainly due to the full consolidation of Code Bleu addition and organic growth.
• Gross Profit reported by the group stood at CAD 4.3 million against CAD 1.2 million in Q2 2020 while the gross margin decreased to 25.3% v/s 26.1% in Q1 2020 resulted from a higher geographical concentration of the services rendered in urban centers.
• The operating income registered by the company stood at CAD 1.38 million agains t CAD 0.63 million in pcp.
• On the back of robust revenue, the company made a turnaround from loss to profit and reported a net profit of CAD 0.82 million v/s a loss of CAD 0.78 million in pcp.
  

Risks associated with investment

A shortage of healthcare workers might result in greater recruitment and retention expenses, as well as a loss of clients and income, all of which would be detrimental to the organization. Furthermore, the company is subject to regulatory risk, capital and liquidity constraints, as well as financing concerns. Furthermore, because to the company's tiny market size classification, investors are subject to liquidity risk. 

Stock recommendation

The firm is continuing to grow organically and through acquisitions in order to maintain its growth trajectory. The full-quarter consolidation of Code Bleu had a significant impact on sales, which increased to CAD17.0 million from CAD 4.9 million in pcp. It also had a strong increase in its bottom line, which is a major plus. Furthermore, the firm recently purchased Solutions Nursing L.F.C. Inc. and Formation Solutions Nursing Inc., and it expects significant organic growth from this business unit over the next two years as its activities are transferred and integrated on its platform. The firm has been busy releasing new features and apps, and it expects a 2% yearly revenue increase as a result of these developments, which is a big bonus. On the valuation front, the stock trades at a significantly lower EV/EBIDTA multiple of 8.79 on Next Twelve Months (NTM) basis, compared to the industry median of 16.35x. Hence considering the facts mentioned above and rationales, we recommend a “Speculative Buy” rating on the stock with a lower double-digit upside (percentage term) at the closing price of CAD 1.20 on August 10, 2021.

Technical Analysis Summary

One-Year Technical Price Chart (as on August 10, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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