Trican Well Service Ltd.

Trican Well Service Ltd. (TSX: TCW) is an oilfield services company, located within the province of Alberta, Canada. The Company provides a comprehensive array of specialized products, equipment, services and technology for use in the drilling, completion, stimulation and reworking of oil and gas wells.

Recently, the Company informed the resignation of Dale M. Dusterhoft from the posts of President, Chief Executive Officer and Director. Bradley P.D. Fedora has been appointed as the new President and Chief Executive Officer of the Company with effect from September 01, 2020.

Q2FY20 Financial Highlights: TCW declared its quarterly results, wherein the Company posted significantly lower income of CAD 28.4 million as compared to CAD 105.2 million in the previous corresponding period (pcp). The decline was primarily attributable to the normal spring break-up slowdown, coupled with the significant drop in commodity prices. WTI and WCS slide 39% and 30% respectively during the quarter, as compared to the previous quarter. Market Events sharply curtailed customer activity, with total second quarter job count dropping to 253 from 2,665 in the first quarter. The Company posted an adjusted EBITDA loss of CAD 6.8 million as compared to a loss of CAD 15.1 million in pcp. Improvement in the EBITDA was majorly driven by cost reduction strategies implemented during late Q1FY20, which has contributed to the Company’s optimization program. Net loss stood at CAD 28.4 million at par with the previous corresponding quarter of CAD 28.6 million. Total proppant pumped and total job count declined significantly at 33 tonnes and 293, as compared to 136 tonnes and 1,150, respectively in the previous corresponding quarter. Cash and cash equivalent stood at CAD 26.4 million, while total assets were reported at CAD 614.9 million.

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: Decline in the Commodity prices acted as a major setback for the Company. Further breakout of COVID-19 would hit the demand of crude oil, which would impact the related industries.

Valuation Methodology: EV to Sales Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock soared ~52% in the last three months. The group repaid its Long-term loans and borrowings in Q2 2020 as a result of significant accounts receivable collections during the quarter. Key cost and discretionary spending plan adjustments implemented in late March 2020 helped mitigate cash burn in the seasonally slow second quarter. The company is focusing on liquidity preservation and planned capital expenditures would be limited to only necessary sustaining expenditures. The company estimates these expenditures at less than 4% of revenue. Due to the lower demand scenario, most of the crude oil manufacturers have lowered their capital expenditure which has resulted in a major challenge for the equipment service providers. The group’s customers have significantly reduced capital expenditure plans, and it anticipates they will only increase spending if oil prices remain stable and global economic activity improves. Although the relative stability in natural gas prices and improved economics of liquids-rich gas wells is cushioning some of the oil-related activity drop, the group continue to anticipate that industry activity will drop by approximately 60% in the second half of the year. The stock is trading near the upper band of its 52-week trading of CAD 1.30 and CAD 0.42. We have valued the stock using EV to Sales based relative valuation method and have arrived at a marginal upside (in percentage terms). For the said purposes, we have considered Precision Drilling Corp, Secure Energy Services Inc and Tervita Corp etc., as a peer group. Hence, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 1.16 on August 25, 2020.

TCW Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

CanWel Building Materials Group Ltd

CanWel Building Materials Group Ltd (TSX: CWX) is a Construction & Materials Company based out of Canada. The Company is engaged in the business of distribution of building materials and home renovation products. CWX also provide wood pressure treating services in the Western United States and Canada.

Financial Highlights – H1 and Q2 Financial Year 2020 (30 June 2020, CAD, thousand)

(Source: Quarterly Report, Company Website) 

In the first half of the financial year 2020, driven by higher revenue from distribution business for the period, the revenue increased to CAD 739,655 thousand (H1 FY2019: CAD 667,647 thousand). The revenue in Q2 FY2020 increased to CAD 412,910 thousand. Reflecting higher revenue, the operating earnings in H1 FY2020 stood at CAD 27,968 thousand and in Q2 FY2020 stood at CAD 21,747 thousand. The net income increased to CAD 13,557 thousand in the first half of the financial year 2020 (H1 FY2019: CAD 7,451 thousand), and the net income in Q2 stood at CAD 12,708 thousand (Q2 FY2019: CAD 7,807 thousand). The basic and diluted earnings per share stood at $0.17 in H1 FY2020 (H1 FY2019: $0.10). The cash balance stood at CAD 4,316 thousand as on 30 June 2020. The total assets stood at CAD 958,509 thousand as on 30 June 2020 versus CAD 894,423 thousand as on 31 December 2019.

Share Price Performance

CWX one year daily technical chart. Source: Refinitiv, Thomson Reuters

CanWel Building Materials Group Ltd shares closed at CAD 7.14 at the time of writing after the market close on 25 August 2020. Stock's 52 weeks High is CAD 7.25 and Low is CAD 2.73.

Key Risks

The Company is exposed to risks related to wood product prices, liquidity risk, currency risk, interest rates risk and credit risk. The Company’s overall business could be impacted due to changes in government policies  and regulations. The Company may fail to integrate the acquired assets, which may lead to integration risk.

Conclusion

The Company has shown an increase in financial performance in the first half and the second quarter of the financial year 2020. Both the top-line and the bottom-line performance have improved. The Company witnessed a decline in revenue from Forestry business. CWX needs to manage the operating expenses unless it would have a negative impact on financial performance in the coming years. At present, the Company is benefited significantly from increased demand for residential building materials. Despite the improved demand, CWX believes covid-19 related uncertainty will impact future financial results and performance. Presently, the company is trading near a 52-week high, raising doubts at its upside potential at current prices.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on CanWel Building Materials Group Ltd at the closing price of CAD 7.14 (as on 25 August 2020), with support from few catalysts needs to be evaluated at a later stage

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.