Major Drilling Group International Inc T.MDI

RBC

[retiredcf]

Looks like a buying opportunity. GLTA

March 3, 2023

Major Drilling Group
FQ3 in line with estimates, 2023 outlook remains strong

TSX: MDI | CAD 11.43 | Outperform | Price Target CAD 15.00

Sentiment: Neutral

Our view: We expect a neutral reaction from MDI shares to FQ3 financial results that were in line with consensus estimates. FQ3 is seasonally weak, so it is hard to glean too much from the results; however demand remained strong and management highlighted positive trends to start calendar 2023. The company is seeing increased drilling activity from copper and battery metals customers while senior gold customers have committed to upsized exploration efforts in CY2023.

Financial results in line with consensus estimates: EBITDA came in at $21M, in line with consensus at $20M but below our estimate of $28M. EPS of $0.08 was below our estimate of $0.15 and consensus at $0.09. Top line revenues were below our estimates, while margins were in line. MDI noted margins were negatively impacted by annual maintenance and standard seasonal shutdowns, although this was balanced by improved pricing and increased productivity.

Operating results: Revenues were up 7.5% y/y to $149M on the back of strong activity in the Australia, Asia, and Africa segment. Australasian and African revenue increased 30% y/y as new contracts and re-negotiated contracts were secured in Asia. South and Central American revenue was slightly up y/y as strong growth in Argentina was offset by weakness in Brazil. Canada and US activity was up marginally as well as strong activity in seniors and intermediates offset softer junior demand.

Capex and balance sheet update: Capital expenditures were $15.6M in FQ3. MDI added 9 rigs and disposed of 10 rigs, bringing the total rig count to 602, down from 603 at FQ2-end. The company ended FQ2 with $110M in cash, up from $98M at the end of FQ2, putting the net cash position at $74M. LT debt was down to $20M at quarter-end from $30M at the end of FQ2. FCF was $24M (helped by a $26M working capital change).