Basic materials is the second-best performing sector on the TSX after energy, thus far, in 2022. This sector that consists of gold, silver, and copper producers is up 18.92% year-to-date. Barrick Gold and Capstone Mining are among the surging mining stocks with over 26% gains, thus far, in 2022.
Meanwhile, one constituent in the industrial sector could deliver far superior returns than gold or copper stocks. The company has a winning business model suited to the current work environment. It also serves diverse sectors, including oil & gas and mining.
Black Diamond Group Limited (TSX: BDI) in the rental and leasing services industry had a fantastic 2021. Given the impressive operational and financial results last year, expect the stock to rise from obscurity and be among the top picks of growth investors. Market analysts predict a return potential between 53.6% and 78.6% in one year. The current share price is only $4.88.
Business model
The $259 million Calgary-based company started with a small operation in 2003. Today, Black Diamond is a leading provider of space rental and workforce accommodation solutions. It has diversified customer base not only in Canada, but also in the U.S. and Australia.
Specialized field rentals are available to industries such as oil & gas, mining, power, construction, and engineering. Black Diamond also caters to financial institutions, military, government, and education. Two operating business units are the lead revenue contributors, while its digital marketplace platform is growing.
Modular space solutions (MSS) offers high-quality, cost effective, modular space rentals. Besides selling new and used space rentals, MSS provides delivery, installation, project management, and other ancillary products and services. Workforce solutions (WFS) provides complete workforce solutions, including rental of accommodation assets, surface equipment, and full turnkey lodging provision.
Clients in need of travel management services like workforce travel and accommodation can source them through LodgeLink, Black Diamond’s digital marketplace platform.
Financial highlights
In Q4 and full-year 2021, Black Diamond reported revenue growths of 71% and 89% versus the same periods in 2020. Funds from operations increased 80% year-over-year to $76.6 million. The company had a 683% turnaround as profit reached $20.4 million compared to the $3.5 million net loss in the prior year.
Apart from achieving record sales revenue, MSS set an eighth consecutive quarterly record in rental revenue. Management said activity levels were strongest in the eastern United States. LodgeLink delivered its highest ever quarter for gross bookings and volume of room nights booked.
Business outlook
For 2022, Black Diamond remains positive. It expects growth in recurring rental revenue streams and free cash flow. The outlook for WFS is constructive as it should benefit from strong commodity prices. There are attractive opportunities within the WFS business that the company can capitalize on to monetize unused assets.
Trevor Haynes, Black Diamond’s CEO, said, “Over the last several years we have worked to scale and diversify our platform.” According to management, driving shareholder returns is a primary focus. In Q4 202If you invest today, the dividend yield is 1.35%.
Thriving in a challenging environment
Currently, investors are focused mostly on the rising commodity prices and looking for safety nets. While gold and mining stocks are top-of-mind prospects, companies with winning business models are thriving. Black Diamond is one of them.
