Should You Buy Tidewater Midstream and Infrastructure Ltd (TSE:TWM)?

Tidewater Midstream and Infrastructure Ltd (TSX:TWM) continues to post impressive revenue growth and its prospects have never been brighter. Its share price has been relatively constant over the last three months; most recently CA$1.32 at the time of posting. I’ve been researching TWM for a while, and am impressed with the business led by Mr. Joel MacLeod. Today I will conduct a high level fundamental analysis on the company by looking at its past financials and growth prospects moving forward.

Firstly, a quick intro on the company – Tidewater Midstream and Infrastructure Ltd. Started in 2015, it operates in Canada and is recently valued at CA$437.69M.

TSX:TWM Future Profit Apr 13th 18
TSX:TWM Future Profit Apr 13th 18

TWM is exceeding expectations, with top-line rocketing up by 101.73% from last financial year . In the last five years, revenue has grown 86.05%, parallel with larger capital expenditure, which most recently reached CA$144.28M. An expected return on investment of 10.74% over the next three years is a result of TWM’s reinvestment into the business, according to the consensus of broker analysts covering the stock. Net income is expected to grow to CA$28.74M over the next year, and over the next five years, earnings are predicted to grow at an annual rate of 39.33% on average, compared to the industry average rate of 11.43%. These numbers tell me that TWM has a robust history of delivering profit to shareholders, with a disciplined approach to reinvesting into the company, and a bright future relative to its competitors in the industry.

TSX:TWM Historical Debt Apr 13th 18
TSX:TWM Historical Debt Apr 13th 18

TWM’s financial status is a key element to determine whether or not it is a risky investment – a key aspect most investors overlook when they focus too much on growth. Tidewater Midstream and Infrastructure’s balance sheet is robust, with high levels of cash generated from its core operating activities (0.46x debt) able to service its borrowings. Although its debt level relative to equity is high at 41.17%, it generates a sufficient level of earnings which amply covers its annual interest payment 37.43x. The company shows the ability to manage its capital requirements well, increasing my conviction of the sustainability of the business going forward. TWM has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities. TWM has managed its cash well at a current level of CA$52.49M. However, more than a fifth of its total assets are physical assets and inventory, which means that in the worst case scenario, such as a downturn or bankruptcy, a significant portion of assets will be hard to liquidate and redistribute back to investors.

TWM currently trades at CA$1.32 per share. With 329.09 million shares, that’s a CA$437.69M market cap – which is too low for a company that has a 5-year free cash flow cumulative average growth (CAGR) trajectory of 86.05% (source: analyst consensus). Given the consensus 2018 FCF level of CA$57.00M, the target price for TWM is CA$2.60. This means the stock is currently trading at a massive discount. However, comparing TWM’s current share price to its peers based on its industry and earnings level, it’s overvalued by 116.74%, with a PE ratio of 33.62x vs. the industry average of 15.51x.

As an investor, I look for investments which does not compromise one fundamental factor for another. TWM is appealing because of the growth story, the possibility that it is yet to be factored into the share price, and the strong capital management. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I’ve taken my data from.