Geodrill Limited GEODF

TD Report

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Geodrill Ltd.

(GEO-T) C$3.12

Strong Finish to Record Year; 2023 Outlook Robust Event

Geodrill reported Q4/22 adj. EBITDA of $7.5mm 57.5% above TD's $4.8mm, reflecting stronger-than-expected revenue and EBITDA margins (24.3%, TD: 19.4%).

Impact: POSITIVE

Q4 results marked a very strong finish to a record year for Geodrill; results significantly exceeded our estimates as we had forecast a greater impact from the delayed rainy season than what materialized. Recall, the rainy season in West Africa traditionally lands in the middle of Q3 but arrived very late this year and extended into early Q4. However, GEO was able to make up for the lost productivity in the back half of Q4 with November representing a record month.

Revenue of $30.9mm increased 15.6% y/y and was 25.8% above our estimate of $24.6mm, reflecting the benefits of its more diversified geographic presence in Egypt, Chile, and Peru as well as continued strong results in West Africa. As at December 31, 2022, Geodrill owned a total of 76 drill rigs, and rented an additional four rigs, bringing the total rig count to 80. Gross margins of 24.1% were above TD's estimate of 23.2% reflecting less of an impact from weather than we had anticipated.

Looking forward, management expects the current strength in the global drilling market to carry across 2023. Furthermore, Geodrill continues to take market share through its expanded geographic footprint and diversified commodity exposure, with its operations in Egypt and South America performing well. We expect 2023 to represent another record year for Geodrill; however, the rate of revenue growth will slow and reflect primarily price pass-through and modest productivity gains given Geodrill's rig fleet is now effectively running at full capacity.

Dividend increased: Reflecting the strong results and outlook, Geodrill has increased its current semi-annual dividend to C$0.04/sh from C$0.03/sh previously.

TD Investment Conclusion

In our view, Geodrill is a high-quality driller doing a good job growing its geographic footprint, expanding its service offering, and winning new senior/intermediate mining customers. We believe GEO is well-positioned to capitalize on the resurgence in drilling activity, with gold at constructive prices for exploration, and with seniors/ intermediates relatively well-capitalized.