TD Flash Note Impact PositiveGeodrill Ltd. (GEO-T) C$1.82 Q4/20 First Look: Solid Finish to 2020; Dividend Initiated Daryl Young, CFA, CA Event Geodrill reported Q4/20 financial results. Adj. EBITDA of $5.7mm, was 9.3% above TD's $5.2mm reflecting stronger-than-expected margins and slightly higher revenue. Conference Call: 10:00 am ET (647 427 7450, ID # 5067017).
Impact: POSITIVE
Revenue of $24.7mm was 3% above our estimate of $24.0mm and up 44% y/y reflecting strong demand from both senior and junior miners and reflecting lower-than-normal prior year revenues owing to the the tragic militant attack in Burkina Faso. This was Geodrill's strongest Q4 on record with management noting that activity levels increased sequentially across the quarter, with December an extremely busy month leading up to and through the holiday season (traditionally, work stops in late-December and remains idled until mid- to late-January). Importantly, activity levels resumed rapidly in January with robust demand across all client segments. As at December 31, 2020, GEO had 68 rigs with 61 available for operation.
Looking forward, management remains optimistic about its prospects for 2021 given robust commodity prices and with the financing markets open to junior miners once again. Management has initiated a C$0.01/sh semi-annual dividend (~1% yield), which it indicated reflects its confidence in the company's future. This is consistent with our view that at $1,700/oz gold, companies will undertake new project development and greenfield exploration. Furthermore, we believe the return of the junior miners will help drive industry pricing and utilization higher, and shift the balance of power back towards the drillers, particularly given the industry-wide labour shortage.
Gross margins of 27.9% were 220bps above TD's estimate of 25.7%, reflecting drilling mix and continued strong cost management despite COVID-19-related operating challenges.
FCF (pre-w/c) was $2.5mm (-$4.6mm after w/c), above TD's estimate of $1.1mm reflecting the EBITDA beat and lower cash taxes. The company noted that it made investments in inventories during Q4 in preparation for continued growth in 2021.
Balance sheet: Net cash of $2.8mm (cash: $6.6mm, debt: $3.7mm) down from net cash of $8.1mm as at Q3/20 reflecting the negative working capital movements.