Strong increases in bookings, backlog EBITDA and earnings in its third quarter mean that drilling tech company McCoy Global (McCoy Global Stock Quote, Chart: TSX:MCB) has reached an inflection point, according to Elias Foscolos of IA Securities. As a result, the analyst has slightly trimmed his price target while maintaining his “Speculative Buy” rating for MCB.
Edmonton-based McCoy Global announced its Q3 financials last week, with the company returning to profitability on a 32 per cent year-over-year increase in revenue.
“Stronger industry fundamentals paired with the results of our restructuring initiatives and operational efficiency gains have returned us to positive earnings and adjusted EBITDA in the quarter,” said Jim Rakievich, McCoy President and CEO, in a press release. “Customers are releasing capital for larger orders of equipment in the US and international markets and we are pleased to be exiting the third quarter with backlog of $15.7 million. This positions McCoy Global to participate in these improving market conditions for the final quarter of this year and into 2019.”
Foscolos says the Q3 top line of $13.9 million was a little above his $13.5 million estimate. He calls the company’s EBITDA of $0.7 million (compared to his estimate of $0.9 million) a sharp reversal from Q2’s negative $0.6 million, while pointing to MCB’s backlog at the end of Q3 of $15.7 million, a 24 per cent sequential growth, with order intake of $17.2 million, a 35 per cent sequential growth.
“We view MCB’s Q3/18 results as positive,” says Foscolos in a research update on November 9. “We set a very high bar in projecting sequential EBITDA growth and MCB essentially got there. Order intake and backlog improved resulting in enough revenue to post both positive EBITDA and somewhat surprisingly positive earnings. We expect to see continued positive momentum in Q4. After adjusting our model for MCB’s Q3/18 results and our relatively unchanged outlook, we have trimmed our target price to $1.80 (previously $1.85).”
The analyst is now calling for revenue and EBITDA in 2018 of $51 million (previously $49 million) and $0.8 million (previously $1.3 million), respectively, and revenue and EBITDA in 2019 of $60 million (unchanged) and $6.9 million (previously 7.4 million), respectively.
Foscolos’ $1.80 target represents a 50 per cent return at the time of publication.
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