Major Drilling Group
FQ1 mostly in line with expectations while drilling outlook remains positive
TSX: MDI | CAD 8.72 | Outperform | Price Target CAD 15.00
Sentiment: Neutral
Our view: We expect a neutral reaction from MDI shares to FQ1 financial results that were mixed compared to estimates. Drilling activity remains robust despite the softening metal price environment as strong demand from copper and other battery metal producers offsets weaker demand from junior gold companies. The drilling outlook appears constructive as MDI management noted they are still seeing elevated activity with senior customers looking to secure rigs for CY2024 to replenish and grow reserves.
FQ1 financial results: MDI reported EPS of $0.26, above our estimate of $0.21 and slightly above consensus of $0.25. EBITDA came in at $40M, also above our estimate of $37M, but below consensus of $44M. The financial results were driven by increasing demand in South America & Australasia, balanced by weakness in North America following project delays and forest fires. MDI generated $20M of FCF (exclusive of working capital) vs. our estimate of $22M.
Operating results mixed across geographies: Revenues were down -0.5% y/y to $198.9M. In the Canada - US region, revenue decreased to $101.5M, -9.9% y/y, based on permitting delays and forest fires which temporarily halted activity. Revenue in South and Central America increased to $51.6M, +8.6% y/y, due to growing demand for battery metals which offset weakness in Mexico. Revenue in Asia, Australia, & Africa increased to $45.8M, +15.1% y/y, driven by stronger demand for specialized services in Australia and the introduction of energy work in Mongolia.
Capex and balance sheet update: Capital expenditures were $16.3M in FQ1. MDI added 5 rigs and disposed of 4 rigs, bringing the total rig count to 601, slightly higher than 600 rigs at FQ4-end. The company ended FQ1 with $76M in cash, down from $94M at the end of FQ4, putting the net cash position at $61M. LT debt at the end of the quarter was zero, as the company paid off its revolving term facility balance of $20M.