Stock Talk Podcast Episode 297 Show Notes

You are listening to KeyStone’s Stock Talk Podcast – Episode 297

Great to chat with you again. This week Brennan kicks off the festivities reviewing an article he penned on Small-Cap and other Canadian Sectors that could potentially benefit from Prime Minister Carney’s Stimulus spending. Aaron takes us through the most recent tariff war news included the 90-day pause between China and the US, Brett has a Crypto market update, and I will review our Star of the Week, GeoDrill Ltd. (GEO:TSX), an international gold driller which saw its share price jump nearly 20% this week after reporting very strong Q1 FY 2025 numbers which bested all analyst expectations – the company also signalled the environment remains very positive.

Let’s get to the show – I welcome my cohost, Mr. Aaron Dunn, and the killer B’s, Brett and Brennan.

Poll Question

Small-cap Stocks to Benefit from Carney’s Stimulus

Last week I wrote an article on Small-Cap Stocks and Canadian Sectors that could potentially benefit from Prime Minister Carney’s Stimulus spending. I encourage you to go over to our website and read the article – we will also post a link to it in the description of this podcast – but I will briefly go over a few key points in the article on the podcast today.

So on the campaign trail, Carney’s promises include $77 billion in new fiscal stimulus over four years, focused on “increased defence spending, infrastructure projects, and new housing construction alongside personal and corporate tax cuts.”

And we had a poll this week that went along with my article, asking our listeners which sectors will benefit the most? We had 70 votes, with:

• Aerospace & Defence getting 11% of the vote
• Infrastructure was the winner with 37% of the vote.
• Natural Resources getting 23%
• And Other got 29% of the votes – with comments including Clean Energy and funnily enough the CRA.

I voted Infrastructure due to homes and renewable energy, but I was a little surprised that Natural Resources beat Defence spending by 8 votes..

In the article I wrote how Carney said at a Bombardier plant in Montreal, “It’s clear military expenditures will be higher than 2% of Canada’s GDP in a few years,” which would be up from 1.3% of GDP in 2023. This could be an increase of over $25 Billion in defence spending and I cover a couple of names in the space which could benefit including MDA Space (MDA:TSX) and touch on a few we have under coverage.

For Infrastructure – he plans to build 500K new homes per year which would be up from 230K over the past decade, funded by $25 billion on Canada’s balance sheet. I personally thought of Renewable Energy being infrastructure which is why I voted for it… as in Carney’s book titled, Value(s), he writes that “the scale of getting to Net-Zero is estimated at $2 Trillion of new capital spending in Canada alone”. Plus, his liberal platform also promised to invest $2.5 billion in digital infrastructure like chips and data centres through the next two fiscal years. For digital infrastructure spending – I am curious to see which stocks our listeners think would benefit, so I included a form in the article where you can submit a stock and I will possibly cover it on the podcast.

Now I do not go into much detail on Natural Resources, but I do discuss Enbrige’s recent letter published to the New Prime Minister which was signed by 37 companies in Canada’s oil & gas space. In my opinion — with the carbon tax remaining and a friendly U.S. president to traditional oil and gas development, it will likely be hard for Canada to attract increased investment in the space.

So please, go check out my article! If you have any feedback or other stocks that you think could benefit which I do not cover in the article, send them in or comment on the poll question.

Crypto Market Update

I’m going to go through a couple of recent updates in the cryptocurrency space for some topics and companies we’ve looked at before, and some new topics.

Bitcoin is currently hovering near $104k, just below its all-time high of just over 109k set earlier in the year, but has effectively recovered in US dollar terms, since its tariff decline. I will also mention my start-of-the-year prediction is that Bitcoin will hit above 130k but end the year lower than 100k, which hasn’t happened yet. Bitcoin has generally been performing better than the broad crypto market, Ethereum, Solana, XRP, Cardano, since the start of the year.

But many altcoins saw a larger bump when Trump was elected in November. The market has seen the Trump presidency as a boon for cryptocurrency as a whole. We’ve seen the creation of the Strategic Bitcoin reserve and Digital Asset Stockpile, as well as general deregulation.  With clearer SEC rules, the crypto industry stakeholders were consistently arguing that the regulation was unclear and inconsistently applied under Biden, and now there is a change of pace. Trump has clearly signalled the US is pro-crypto and financial markets are jumping on any opportunity.

Today, we’ve seen one of the largest cryptocurrency companies, Coinbase symbol COIN, being added to the S&P 500, the first crypto company to be added to the index. Coinbase, if you don’t know, is a cryptocurrency exchange, with $393 billion in quarterly trading volume and $328 billion in assets.  This is a change of pace for the industry as the world’s most popular index will add significant passive fund flows into the company. Index investing is really on the opposite end of the risk spectrum of the crypto industry, so the inclusion of Coinbase in the index will cause investment from investor classes that would not have touched the company or industry previously.

On the news, Coinbase shares were up over 20%. The company was one of the largest companies not included in the index. With the current market cap of the size putting it in the 150th to 160th range for size in the index. This is a boon for the company and the industry as a whole because it will cause more funds to flow into the industry.

Some more company news is Wonderful symbol WNDR on the TSX, a Canadian cryptocurrency platform we’ve covered before and notably marketed by Kevin O’Leary is being acquired by Robinhood for $0.36 a share, a 41% premium over the prior close. Robinhood symbol HOOD is an American based trading platform for equities as well as crypto, known for its commission-less trading of stocks. We’ve covered Wonderfi before, and it’s generally had poor fundamentals and financials with the odd quarterly strength. The acquisition appears to be a strategic fit for Robinhood as it has been looking to expand into Canada and internationally.

Likely not the next corporate move, but one that shows likely continued Trump support for the industry. American Bitcoin, Eric Trump’s and the Trump families Bitcoin mining company which assets were carved out from Hut 8’s energy infrastructure, will be going public through an all stock merger with Gryphon Digital Mining, expected to close in Q3. This is adding further crypto exposure to the Trump family’s exposure to Crypto, including World Liberty Financial and of course, Trump coin. The resulting company will initially be 98% owned by the Trump family.

Obviously, this further aligns the Trump family’s financial interests with the appreciation of Bitcoin. So overall, Trump and his family have personal financial interests and have already put through supportive policies for the industry. This will likely continue for the foreseeable future under the current government.

And of course, I can’t have a crypto segment without talking about how risky it is. Given the current environment, I expect we will likely see another surge in crypto products and securities, notably in the public markets, in the near future.

To highlight the risk, Alex Machinsky, the man behind the Celsius fraud has been sentenced to 12 years in prison. The company fell apart in 2022, when withdrawals suddenly stopped. As $1.2 billion in assets were missing from the company’s balance sheet, the result was $4.7 billion in creditor claims in bankruptcy documents.

Celsius’s slogan was Unbank yourself and focused on the anti-bank sentiment many have. Which is ironic given the company was effectively a fraudulent bank.

If I am correct and public crypto-related companies do surge, many investments will be poor like Wonderfi has been for most of its investors or downright fraudulent like Celsius was. Simply, if you are looking at any crypto-related investment, make sure it is money you can afford to lose.

GeoDrill Ltd. (GEO:TSX) | Star of the Week

Company Description

Geodrill is a leading drilling company with a large presence in West Africa and an emerging presence in

Latin America. The company operates a fleet of Multi-Purpose, Core, Air-Core, Grade Control and Underground drill rigs totalling 98 units.

The company’s multi-purpose rigs can perform both reverse circulation (or RC) and diamond core drilling and can switch from one to the other with little effort or downtime. Multi-purpose rigs provide clients with the efficiency and high productivity of RC drilling and the depth and accuracy of Core drilling without the need to have two different drill rigs on site. Geodrill currently has operations in four African countries and two South American countries. The company’s rigs and support equipment also incorporate a fleet of boosters and auxiliary compressors, which enable the Group to achieve high-quality sampling and operations to greater depths.

Why is GeoDrill our star of the week? A nearly 18% jump over the past couple weeks – I will get into what drove the jump in a second.

The stock is up 43% over the past year.

And it has more than doubled since we were able to re-recommend it over the past 18 months. 

Ok..let’s take a look at the strong Q1 FY 2025 just released which are driving the stock higher at present – basically record results across the board.

Q1 FY 2025

Generated record revenue of $48.8 million, a 41% increase compared to Q1 2024.

• Delivered record EBITDA of $13.6 million, or 28% of revenue, a 104% increase compared to Q1 2024.
• Achieved net income of $5.6 million, or $0.12 per share, compared to net income of $2.1 million or $0.04 per share for Q1 2024.
• Generated Return on Capital Employed (ROCE) of 18% and Return on Equity (ROE) of 10%, reflecting strong capital efficiency and profitability.
• Averaged 75% rig utilization on the enlarged fleet during the quarter compared to 65% in Q1 2024.
• Strengthened operations in West Africa and Egypt, repositioning rigs for continued growth.
• Expanded presence in South America by adding additional rigs to meet customer demand.
• Increased the rig fleet to 98 rigs, adding 3 rigs during the quarter.

Balance Sheet

Cash: $13.0 million.

Debt: $13.7 million

Strong balance sheet – particularly compared to peers – likely moves to net cash by year end, pending demand and additional drill rigs. 

Outlook/Guidance

• Demand for services remains strong despite tariff concerns.
• Strong gold and copper prices continue to fuel demand for drilling services.
• Pipeline of bidding remains very active.
• On the conference call, management stated that it expects Q2 2025 revenue to be roughly in line with Q1 2025 (which was a very strong quarter).

Valuations

• EV/EBITDA (adj) (2024a): ~3.5x.
• EV/EBITDA (adj) (2025e): ~2.8x.
• PE (adj) (2024a): ~12.3x.
• PE (adj) (2025e): ~7.3x.

Stock continues to look undervalued if the strong gold environment continues.

Conclusion

Record Q1 FY 2025 results were driven by strong gross (28%) and EBITDA (27%) margins. A strong gold price continues to drive demand for drilling services (drills approximately 95% for clients exploring for gold). 

Geodrill continues to re-invest cash flow to grow its fleet ($3.6 MM of capex) which has expanded to 97 rigs (up from 93 at YE-2024), plus 1 being rented. Management again noted on the conference call that it currently sees the reinvestment of FCF into the business to be a better use of capital (vs. dividends/buybacks) given the demand it is facing.

Demand remains strong across all of its main geographic segments, including South America, West Africa (excl. Burkina and Mali), and Egypt. The company aims to continue growing its fleet across its geographies, expecting to cross the 100 rig mark in near-term. GeoDrill has also recently established a company in Saudi Arabia with the intention of tendering new contracts in 2025.

Clients will be updated shortly with our updated rating.