Secure Energy Services Inc

Secure Energy Services Inc (TSX: SES) provides treatments and disposal services to the oil and gas industry which constitutes midstream services, environmental services, systems and products for drilling, production and completion fluids, and other specialized services and products.

Key highlights

• Executing cost reduction plans:The management undertook prudent steps to implement cost reductions to align the Corporation’s cost structure with expected industry activity. By doing this, the management expects annualized savings by more than CAD 40 million in Adjusted EBITDA.  

• Improving macro scenarios: Based on current macroeconomic conditions and commodity prices, the company expects a modest increase in drilling and completion activity in the coming quarter and FY 2021 from current levels, as producers seek to add production to offset natural declines to maintain flat production levels to hold cash flow levels. These improvements would be a key positive for the group. 

Financial overview of Q3 2020

Source: Company

• The Company declared its quarterly numbers and reported a decline in the revenues which stood at CAD 452 million, as compared to CAD 727 million in the previous corresponding period. Both segments reported decline.

• Midstream Infrastructure segment revenue (excluding oil purchase and resale) decreased by 40% to CAD 44.8 million, due to lower processing and disposal volumes at the Company’s midstream infrastructure facilities as there were low drilling and completion activity across the WCSB and North Dakota since March 2020.

• Oil purchase and resale revenue decreased by 40% to CAD 348.7 million due to a decrease in Canadian light oil benchmark pricing by 29% during the reported quarter.

• Adjusted EBITDA stood at CAD 37 million in Q3 2020 decreased by 14%, as compared to previous corresponding period, the reason behind this drop was the decreased level of production and contracted volumes during a period of reduced drilling and completion activity levels. 

• In Q3 2020, the Company reported a net loss attributable to shareholders of CAD 4.6 million, as against a loss of CAD 0.63 million in Q3 2019. The increase in net loss is primarily due to lower Adjusted EBITDA. 

Risks associated with investment

The company’s performance is related to the demand and price of the crude oil. Any volatility in the crude oil prices or setback to demand would hamper the company’s performance. 

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

For the remainder of 2020 and throughout 2021, the company would continue to focus on maintaining financial resiliency by maximizing cash flows and paying down debt with discretionary free cash flow. By doing so, the corporation would remain well-positioned to respond to the market's needs when activity levels increase. The Company also undertook some prudent steps in Q2 2020 to control the cost and expects an annualized savings by more than CAD 40 million in Adjusted EBITDA, looks impressive. Therefore, based on the above rationale and valuation, we have given a "Speculative Buy" rating at the closing price of CAD 2.55 on December 22, 2020. We have considered Mullen Group Ltd, CES Energy Solutions Corp, Enerflex Ltd, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

CloudMD Software & Services Inc

CloudMD Software & Services Inc (TSXV: DOC) is digitizing the delivery of healthcare by providing patients access to all points of their care from their phone, tablet or desktop computer. The company offers SAAS based health technology solutions to medical clinics across Canada. It has developed proprietary technology that delivers quality healthcare through the combination of connected primary care clinics, telemedicine, and artificial intelligence (AI).

Key Highlights

• Inorganic expansion:The Company is well funded and has a strong pipeline of M&A to scale and grow the business quickly. Recently, the group signed an agreement to acquire IDYA4, leading data integration and cybersecurity company based in the United States at a price consideration of USD 14.8 million. In addition to accelerated integration, the Company is likely to leverage IDYA4’s existing relationships and cross-sell its suite of healthcare solutions and enterprise healthcare platform to the clients.

• Robust guidance: The group expects approximately USD 4.1 million revenue in the calendar year 2020 with EBITDA margins of 36% with a strong revenue pipeline and growth opportunities and forecasted to generate annual gross revenue greater than USD 6 million and USD 8.5 million in calendar years 2021 and 2022, respectively. 

• Healthy balance sheet:The Company has a strong balance sheet, which is allowing it to continue deploying capital towards a robust pipeline of accretive, synergistic acquisitions. The group had cash and cash equivalents of CAD 33.9 million as on September 30, 2020, compared to CAD 13.813 million on September 30, 2019. 

Financial overview of Q3 2020 (Expressed in Canadian Dollars)

Source: Company

• In Q3 2020, the Company reported healthy revenue growth of 55% to CAD 3.35 million compared to CAD 2.16 million reported in the previous corresponding period. The increase in revenue was primarily due to acquisitions in the Clinic services & pharmacies segment and an increase in SaaS model digital services revenue by 22%.

Source: Company

• The Company posted a net loss of CAD 2.7 million in Q3 2020, compared to a net loss of CAD 0.8 million in the previous corresponding period, primarily due to additional expenses incurred to support the Company’s growth strategy. 

Risks associated with investments

The company is exposed to various market risks in the ordinary course of operations that could impact its earnings and cash flows. Some of the important risk factors are general healthcare regulation, reliance on third-party service providers, competition, shortage of healthcare professionals, cybersecurity, and dependence on key personnel. 

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The group reported solid performance in the third quarter of 2020, with revenue up by 55% on YoY basis, driven by a 62% surge in the Clinical Services & Pharmacies revenue and 22% surge in the SaaS model digital services.  Also, the Company has a strong balance sheet, which is allowing them to continue deploying capital towards a robust pipeline of accretive, synergistic acquisitions. Therefore, based on the above rationale and valuation, we have given a “Speculative Buy” rating at the closing price of CAD 2.57 as on December 22, 2020. We have considered Skylight Health Group Inc, WELL Health Technologies Corp, Drone Delivery Canada Corp etc., as a peer group for comparison purpose.

1-Year Price Chart (as on December 22, 2020). Source: Refinitiv (Thomson Reuters)