QIS Update #11 2015 - August 27th 2015
Included in this update:
- Dalmac Energy announces fiscal 2015 annual financial results
- Newlox Gold Ventures resumes trading after filing audited annual financial statements
- NTG Clarity Networks releases Q2 and six month results for the period ended June 30, 2015
What a crazy couple of weeks on the markets. Immediately after its 5-day fall of 1,844.90 points, the Dow Jones has gained back over 988 points in the past two trading days. In Canada, the TSX Venture Composite Index reached a low of 509.03 on Monday before rebounding for three consecutive days to finish up Thursday at 545.57 points – a swing of more than 7%. The TSX Composite Index also bottomed out on Monday at 12,705.17 points and now sits over 1,000 points higher three trading days later at 13,766.67 points. It has been some time since we’ve seen this level of short-term volatility including some significant intraday swings.
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Dalmac Energy Inc. (DAL:TSX-V)
Current Price: $0.17 (coverage commenced Nov 15/11 - $0.37)
Dalmac Energy Inc. has released fourth-quarter and annual financial results for the fiscal year ended April 30, 2015.
Fourth-quarter and annual financial highlights:
- Gross margin increased by 1% to 24% from 23% in 2014 - despite downward pressure from major customers, to cut rates by about 20%
- EBITDA was roughly $3.62M in the current year end compared to $3.58M in the prior year. Even with a $5M decrease in Revenue Dalmac was able to hold bottom line numbers fairly consistently. This is really a credit to operations and field staff in relation to cost cutting measures which were implemented
- Cash position at year end is significantly better - $1.6M in current year compared to $526K in previous year
- Debt was reduced from 12.6M to $9.39M in the year
|LATEST FINANCIAL RESULTS (000s)|
|3 Mos. Ended Apr. 30||Year Ended Apr. 30|
(as at Apr. 30, 2015)
|Current Assets||$ 6,612,010|
Late in November of 2014 OPEC decided not to reign in their production. The consequence of this decision, in light of the swelling shale oil boom in the US, resulted in oversupplied energy market. This caused the price of oil to drop by upwards of 50%. The exploration and production (E&P) companies reacted swiftly by scaling back on their drilling activity and by demanding rate cuts from their suppliers. Dalmac responded by cutting its rack rates in the vicinity of 15 – 20%. Subsequent to the aforementioned, certain key customers expressed their desire to reduce the size of their vendor lists in favour of a select group of service providers who represent the necessary qualifications as a desired business partner. Dalmac was selected as one of the business partners of choice and was awarded with not only existing but additional work contracts in the Duvernay basin.
With the volatility in oil pricing came pressure on pricing from key customers which hit the company’s gross margin and bottom line. Revenue decreased by 14% to $32 million from the same period last year. The down turn was most significantly felt in the fourth quarter which ended April 30. Revenue dropped by 32% to $6.7 million and net income decreased by 6% to $(893,000) of which, $(932,000) was a result of the disposal of assets.
As a cost saving measure, Dalmac decided to dispose of assets over the course of the year which resulted in a disposition loss of $932,000. The overall combined impact of all the above reduced year end net income by 2.2% to $(1.16) million.
Gross Margin, as defined as revenue less direct operating costs as a percentage of revenue, was 18% for the quarter and 24% for the year end. This compares to 20% and 23% respectively for the previous year. This reflects the drop in oilfield activity as a result of volatile oil prices and management response to this development in the form of rapid deployment of cost saving strategies.
The surplus of oil production is continuing to put pressure on commodity prices which is in turn affecting industry capital investment. According to the Canadian Association of Petroleum Producers (CAPP), oil and gas capital investment for 2015 is forecasted to decrease about 40% to $45 billion and drilling activity decreased 47% to 5320 wells. The bright spot on the horizon is the Duvernay basin which happens to be in Dalmac's back yard. The focus of activity for the immediate future is the natural gas liquids- rich areas of the basin. Drilling in the Duvernay is also not cheap – wells can cost anywhere between $11-20 million to complete - depending on the location. Early indications from our key E&P customers is that they will be completing a fairly extensive drilling program for the balance of the year to bring targeted production areas on line. This bodes well for Dalmac's utilization rates on a going forward basis.
QIS Capital: There are very few if any oil and gas production service companies which will post positive net income during 2015. The pressure on pricing to stay competitive in the industry has pushed rack rates below cost in most instances which will take time to return to a more profitable level. At this time, Dalmac has been able to meet its financial obligations and actually improved its debt levels and working capital position over the course of the last year. It should also be noted that the company’s book value at year-end was $12.1M or $0.52 per share. Due to the state of the industry, this will be our last official update including Dalmac Energy.
Newlox Gold Ventures Corp. (LUX:CSE)
Current Price: $0.055 (coverage commenced March 31/14 - $0.05)
Newlox Gold Ventures Corp. has resumed trading as at the open on August 27, 2015. On August 21, 2015, the company filed its audited annual financial statements for the fiscal year ended March 31, 2015.
The complete financial statements and MD&A are available now on SEDAR at www.sedar.com.
QIS Capital: Financial statements for Newlox are still not meaningful as commercial production did not commence prior to the year-end date of March 31, 2015. First quarter financials due by the end of August will also only show a partial quarter of production. Newlox has had some start-up challenges as most small scale producers do at the onset of production. Management continues to alter production procedures to optimize results and we are expecting to see an operational update in the coming weeks. Newlox is presently trading with a market capitalization of less than $2.5 million.
NTG Clarity Networks Inc. (NCI:TSX-V)
Current Price: $0.325 (coverage commenced Feb. 4/10 - $0.045)
NTG Clarity Networks Inc. has announced first half 2015 revenues of $8,033,202, as compared to $6,828,945 in 2014, an 18% increase. (All amounts in Canadian dollars).
Revenues continued to improve during the first two quarters of 2015 due mainly to the renewed international focus on state-of-the-art technology and networking capabilities. Mobile applications have been the fastest growing technology trend with NTG’s mobile application development being increasingly chosen as a leading product in these markets. Net income during the first half of 2015 improved modestly by 7% to $888,759 from $834,224 during the same period in 2014.
For the three months ended June 30, 2015, revenues were $3,031,041, a decrease of 22% compared to the same period in 2014. The decrease was due to the timing of new work and an exceptionally strong Q1 2015 when the bulk of work was completed for several new projects. Net income for Q2 2015 was $166,270, compared to $631,722 in 2014.
As at June 30, 2015, NTG Clarity had positive working capital of $6,789,953 ($0.19 per share) and no long-term debt.
|LATEST FINANCIAL RESULTS|
|3 Mos. Ended Jun. 30||6 Mos. Ended Jun. 30|
|Cost of Sales||1,820,542||2,054,493||5,067,884||3,700,464|
|Selling and G&A Exp.||982,047||602,240||1,915,215||1,602,398|
|Forex Loss (gain)||(259,038)||32,098||(561,108)||(228,798)|
|Income Tax Exp.||(87,493)||278,500||100,000||350,000|
(as at June 30, 2015)
|Current Assets||$ 11,677,871|
The first half of 2015 has been a record period for NTG Clarity with revenues remaining on pace with management’s projections. Net income has been more challenging with increased overseas expenses and with the company now being subject to full income taxes due to positive earnings over the past two years. Management is working diligently to improve margins and continues to seek accretive acquisitions to reduce taxes payable and increase the customer base.
NTG Clarity management is cognoscente of the challenges facing global economies and has positioned the company for continued growth with a strong balance sheet, improving results from our new offices in Qatar and Kuwait, and a strong focus on continued highest quality customer support that continues to generate contracts with new clients and renewal work with existing clients. Management is confident that NTG Clarity will continue to emerge as the leading choice in the expanding OSS/BSS market.
QIS Capital: As expected, second quarter revenues were lighter than an exceptionally strong first quarter. In the MD&A, management discusses two new products which should start to have a material impact on revenues in the third and fourth quarters of 2015. NTS Dashboard is Business Intelligence software that displays information in real time from databases, data warehouses, spreadsheets XML, and other data sources. Stage EM is a new state-of-the-art Strategic Enterprise Management Software Suite which allows executives to integrate the management of strategic planning, demand capacity management, and project management. We expect to see orders commence shortly for these new products from medium to large corporations and well as from government sources and municipalities. NTG Clarity continues to show modest growth and management remains confident that the company can reach its revenue targets for 2015.
Disclaimer: This article is for informational purposes only. The information contained within this article should not be construed as offering investment advice. Those seeking direct investment advice should consult a qualified, registered, investment professional. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The company profiled assumes no liability for the information presented. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock. The author(s) owns directly or indirectly 169,000 shares of Dalmac Energy Inc., 3,522,000 shares and 2,000,000 warrants of Newlox Gold Ventures Corp. and 1,022,500 shares and 100,000 options of NTG Clarity Networks Inc. QIS Capital may have a financial relationship with these companies and may trade in the stocks mentioned. No stock exchange has approved or disapproved of the information contained herein. Copyright © 2003 - 2015 QIS Capital Corporation.