Pat McKeough responds to many requests from members of his Inner Circle for specific advice on stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.
This week we heard from an Inner Circle member asking for Pat’s opinion on one of the resource stocks that serves oil and gas and mining firms. Black Diamond Group makes modular buildings and housing for workers in remote locations. The company seeks to tap into expanding resource development by stepping up its acquisitions. Pat assesses the opportunities for growth and the added risk that comes with its acquisition strategy.
Q: Hi Pat: What is your recommendation for Black Diamond Group? Thank you.
A: Black Diamond Group (symbol BDI on Toronto; www.blackdiamondlimited.com) is a Calgary-based company that builds modular buildings and housing for workers at remote sites, such as mines and drilling rigs. It also provides oilfield services and equipment. Aside from oil and gas and mining, Black Diamond’s customers include electricity, construction and engineering businesses, as well as government agencies.
The company’s Camps division rents and sells remote workforce housing and provides associated services. Its temporary structures include large dormitories, kitchen/dining facilities and recreation complexes. This division is largely focused on western Canada.
The company’s logistics division operates remote lodging facilities for third parties. It also owns the sprawling Sunday Creek Lodge, which provides accommodations for corporate clients in the northern Alberta oil sands. Black Diamond Logistics also transports, installs, dismantles, repairs and maintains modular structures for customers.
The BOXX Modular division rents and sells a broad range of modular work spaces, including office units, storage areas, office complexes, training facilities, lavatories and customized structures.
The Black Diamond Energy Services business provides oilfield services and rents and sells related equipment, such as storage tanks and rig matting (which is used to support rigs and other construction equipment). Energy Services also provides drill-site accommodations, such as quarters for geologists, engineers and other staff.
Black Diamond pays almost $40 million for Australian modular rental firm
In the three months ended September 30, 2013, Black Diamond’s revenue rose 4.3%, to $78.1 million from $74.9 million a year earlier. Earnings per share fell 12.5%, to $0.28 from $0.32. That decline was mostly due to non-cash depreciation charges associated with the company’s expansion into Australia.
The company’s cash flow rose 41.5% in the latest quarter, to $37.2 million from $26.3 million. Cash flow per share rose 35.3%, to $0.88 from $0.65, on more shares outstanding.
Earlier this year, Black Diamond bought the modular rental business of Australian Portable Buildings Pty. Limited for $39.3 million. The purchase included 913 modular accommodation and workspace units that are rented to a diverse customer base throughout Australia.
The company plans to continue to expand internationally by purchasing related firms and assets, including further acquisitions in Australia.
Black Diamond’s $0.08 monthly dividend yields 3.3%.
In the Inner Circle Q&A, Pat balances the added risk of Black Diamond’s expansion plans against the outlook for resource markets. He also looks at the company’s debt in the wake of its Australian acquisition as well as its earnings forecast. He concludes with his clear buy-hold-sell advice on this stock.
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