Major Drilling Group International Inc T.MDI

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They have a $14.50 target. GLTA

Major Drilling Group International Inc.

(MDI-T) C$8.23

Q1 Preview; Share Price Weakness not Reflecting Strong Outlook Event

MDI is scheduled to release its Q1/F24 results on Tuesday, September 5, after market. A conference call will be held at 8:00 a.m. ET September 6 (Dial in: [phone]; Passcode: 8876233#).

Impact: NEUTRAL

• We forecast Q1/F24 EPS of $0.25 and EBITDA of $45.6mm. Consensus EPS is $0.26 and consensus EBITDA is $45.6mm.

• Near-term outlook strong: Management comments in Q4/F23 MD&A suggested that it expected robust activity levels by the end of Q1/F24 (end of July) and that the outlook for the fiscal year was "extremely positive". We view this management team as relatively conservative in its outlook; so this is a good sign, in our view.

• The outlook is underpinned by increased exploration budgets for its senior gold customers, and also growing exploration market for copper, lithium, and other battery metals. This is mitigating pockets of weakness from junior gold customers as capital markets fundraising remains challenging.

• Share buyback: MDI launched an NCIB for the first time in several years to opportunistically buy back shares. Between June 22 and July 11, the company repurchased 145k shares for a total cost of C$1.3mm (C$8.88/share). We view this as another good indication that management has a positive outlook.

• No exposure to ongoing security issues in West Africa: In August, industry comparable Geodrill Limited (TSX: GEO, not covered) reported a 17% y/y decline in revenue, partially driven by its decision to exit Burkina Faso due to security issues, and we believe this weakness has affected MDI's share price to some degree. However, we do not view this as a relevant read-through for Major Drilling as it has no operations in West Africa (almost 80% of revenues are in the Americas).

• Valuation — MDI is trading at roughly 4x FY 2024E EV/EBITDA. This is near trough-level valuation; the long-term average is ~8x, and it hit ~12x at the peak of the last cycle. We see significant upside, particularly if the junior gold financing market begins to open up.