Geodrill Quick Update - $GEO.to
Quick update after Q4 2023
*Disclosure: I own shares in GEO.to
All numbers in USD.
Price: $1.68 CAD/$1.21 USD
MC: 57.5 million USD
EV: 54.2 million USD
Yield: 0% (they cut the annual dividend)
1 year performance: -47%
GEO reported Monday this week. Results were behind my already lowered expectations and the stock has essentially been flat.
Quarter Recap
Rev 6% for the full year.
There is seasonality to the business, so I am looking at this on a ttm basis.
EBITDA was 20.6 for 2023 vs 38.4 for 2022.
This includes an additional credit loss provision of 4.7 million.
They have over 15 million in receivables that over over 90 days past due. After the reserve this is under 10 million. FWIW end of 2021 they had 3.3 million.
This was mentioned last quarter, but I had thought we would have some more clarity on the eventual outcome by now.
Call Notes
Outlook was reasonable. The CEO mentioned that they are off to a good start to the year.
They feel Q2, Q3 and Q4 should show some improvement.
They will likely announce some of the new contracts with Tier 1 customers as they are awarded them.
They are looking to really change the contract terms with juniors. More cash up front and being firmer when they shut rigs down.
Some of the 15 mil in receivable that are 90 days or greater are well over the 90 day mark. How much of the net 9.7
Closing Thoughts
They mentioned the issues with the receivables over the last couple of quarters. I don’t think I appreciated how bad things were/are. When researching GEO I was worried about the exposure to juniors, but I was not expecting a record high gold price to coincide with juniors not able to get financing. I did not use my imagination and that is a development opportunity for me.
I am debating adding some here, but I already added a bit after the last quarter at around these prices. GEO has not been a good trade for me, so my post the other day on averaging down is timely. My average initial position is down 15-20% with an average hold of a bit under 2 years. I didn’t buy into the hype of the banger year in 2022, but I also didn’t sell into strength.
I no longer believe that they have the potential to eclipse the 2022 numbers in 2024 or 2025. The shift to more senior producers takes time and the margin profile is not as lucrative.
Regardless of how I played GEO, we are where we are. A position at these prices may make sense. Taking an average of years 2021, 2022 and 2023, I get them at less than 4x FCF and under 2x EBITDA. Still being run by the founder with heavy insider ownership.
We have general neglect in the microcap space and even worse for anything having to do with gold. Precious metals have kooties to millennials. We have a tough Q1 comp then easy from there. We should get a better idea of margins with the focus on a more durable business in the next couple of quarters. That is when I will decide if I should continue to hold GEO.
Thanks for reading.
Dean
* long GEO.to
The strategy of going after the majors seems to be adopted by all the drillers. So what makes GEO able to displace others ? Furthermore, if the financing window opens up (and it will), do you think that juniors will pay old drilling bills or will want to spend in on new drilling ? On the flip side, when it rebounds, there will be less competition : for exemple, Orbit Garand exited West Africa totally after leaving Burkina.
Dave Harper mentioned also Mali during the quarter : this is another country with problems, Capital was mentioning a slow down in their last quarter.
So I might be wrong, but there seems to be safer places to wait for a rebound. Capital is expanding in NA with a huge Barrick contract in Nevada plus Chrysos expansion, FAR is expanding in the States too and is probably in play with the main shareholders now able to sell, and MDI is the 800 pound gorilla still throwing out cash flow and set up for the supercycle.
GL.
Dave Harper lost all of his credibility several quarters back when he talked glowingly about a quarter that was already underway and then laid a big fat egg. It hasn’t gotten any better since, and from what I can tell their move into South America has been poorly executed. Harper wants to retire so there may be a play here at some point, but personally I wouldn’t touch it unless it was at absolute fire sale prices like a buck Canadian.
Their operating jurisdictions have huge risks, and management isn’t executing. There are much better ideas out there IMO.