MAJOR DRILLING $15.27 (Toronto symbol MDI; TSINetwork Rating: Speculative) (1-866-264-3986; www.majordrilling.com; Shares outstanding: 79.1 million; Market cap: $1.2 billion; Dividend yield: 1.2%) is a large contract drilling firm that mainly serves the mining industry.
In its fiscal 2012 third quarter, which ended January 31, 2012, Major’s revenue rose 69.1%, to $182.2 million from $107.7 million a year earlier. Earnings per share jumped to $0.12 from $0.02. Due to seasonal factors, the third quarter is typically the company’s weakest.
Many of Major’s customers increased their drilling during the quarter, especially for gold, copper, coal and iron ore. The company gets 38% of its revenue from Canada and the U.S., 32% from South and Central America, and 30% from Australia, Asia and Africa.
In September 2011, Major bought Bradley Group, a family owned company based in Quebec, for $80 million. Bradley added roughly $132 million of annual revenue and 124 rigs, bringing the size of Major’s fleet up to 695.
Major raised its twice-yearly dividend by 12.5%, to $0.09 from $0.08, with the May 2012 payment. The stock now yields 1.2%. The company holds cash of $50.1 million, or $0.63 a share. Its long-term debt of $44.0 million is only 3.7% of its market cap.
Major’s labour costs are rising along with global demand for drilling personnel. But it’s increasing its prices to offset the added expense. The stock trades at 11.7 times this year’s forecast earnings of $1.30 a share, and just 8.6 times next year’s forecast of $1.78 a share.
With its specialized drilling capabilities and strong balance sheet, Major remains better positioned to profit than many of its competitors.
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