Why Black Diamond is poised to shine on

Benj Gallander, Ben Stadelmann, and Philip MacKellar
Wednesday April 24, 2019

Black Diamond Group, an enterprise that primarily rents and sells modular workforce accommodations, has been hampered by rough times. While its operations do extend into sectors such as construction, education and real estate development, among others, much of the firm’s revenues are dependent on the resource arena.

The decline in the oil patch caused the top line to plunge from $387 million in 2014 to $166 million in 2017. Net income also dropped, from $20 million to $95 million in red ink. The latter figure rebounded somewhat in 2018, to a loss of $11 million. Still not very savoury.

Despite the poor numbers, the company was added to one of the Contra portfolios at the end of 2018, at $2.11, after being watched for several years.

When sales cratered, the company worked hard to cut debt, which peaked at $196 million in 2014. Currently it resides around $83 million, with management pledging to slice it even further. Funds from operations have been $33 million in the first nine months of this year.

There has been some good news. A 304-bed project in Kitimat, B.C., is in the works. A bigger payoff should arrive via a $42.5 million, 908-bed camp planned to accompany the construction of the Coastal GasLink pipeline, in conjunction with the West Moberly First Nations in northern British Columbia.

Although all projects to lay pipe seem tentative these days, there is a high probability that the Coastal GasLink will happen as planned. All 20 elected First Nation councils along the route have agreed to the project, although a group of eight Wet’suwet’en Nation hereditary chiefs remain opposed.

Spurred by the problems in the Western Canadian resource sector, Black Diamond has focused on creating revenues elsewhere. About 70 percent of sales now come from other locales, and management would like to raise that share. At the same time, the recovery in oil prices has helped to firm up the bottom line, and better results are expected this year. (The company will report results on May 2.)

One encouraging sign is the continuity in the executive suite. Trevor Haynes is the chairman, president and CEO, positions he has held since co-founding Black Diamond in 2003. Ideally, we would like to see a couple of people sharing these positions, albeit it is less expensive this way. Toby Labrie, executive vice-president and chief financial officer, has been with the enterprise for about a decade. The rest of the management team oozes experience.

Insiders seem to believe strongly in the future of this organization, as they have been heavy buyers of shares.

Our initial sell target on BDI is $10.24. While some might paint us as optimistic in seeking almost a five-bagger, the stock’s history suggests our goal is not beyond reach. Back in 2014, it traded above $34.00.