New Revenue Stream, Strong Balance Sheet in a Challenging Market

Metrics	Value
Current Price	CAD $1.46
Fair Value	CAD $2.42
Risk	3
52 Week Range	CAD $1.08-2.69
Shares O/S (M)	78
Market Cap. (M)	CAD $113
Current Yield (%)	N/A
P/E (forward)	20.2
P/B	1.3

Report Highlights

E is up 4% YoY, outperforming the S&P Oil & Gas Equipment & Services Index, which is down 26%.
Similar to Q1, Q2 revenue fell 16% YoY, missing our estimate by 6%, primarily due to lower sector activity amid softer oil and gas prices. Q2 and Q3 are typically weak seasonally, while Q4 and Q1 are usually the strongest quarters.
Sources indicate that oil and gas sector CAPEX in North America will decline 3–4% this year. We believe spending is likely to remain cautious amid price volatility, elevated economic and geopolitical risks, and the potential for a global GDP slowdown. However, with consensus forecasts projecting oil prices 12% lower in 2025, but rebounding 5% in 2026, we believe CAPEX budgets could see a subsequent increase.

We anticipate stronger H2 revenue following E’s May 2025 acquisition of FlexEnergy Solutions’ Canadian operations for $20M. FlexEnergy, based in Colorado, manufactures turbine and microturbine power generation systems. The acquisition includes 17 turbines, and expands E’s position from being the exclusive Western Canada supplier to the exclusive nationwide supplier of FlexEnergy products. We estimate the deal will contribute ~$8M in annual revenue, partially offsetting the impact of softer sector activity.
The balance sheet remains strong, with a debt-to-capital ratio of 23% vs the sector average of 33%. E also has the ability to raise up to $10M through in-the-money options and warrants.

Price and Volume (1-year)

	YTD	12M
E	-28%	4%
TSX	12%	21%
Sector*	-20%	-26%

Enterprise vs Larger Players

E’s weaker H1-2025 results are consistent with peers, as average revenue growth in the oil and gas services sector is projected to decline from 7% in 2024, to 4% in 2025

We believe E’s higher gross margins and significantly lower debt-to-capital justify its premium valuation multiples

Financials

Q2 revenue declined 16% YoY (Q1: down 16% as well), missing our estimate by 6%. Gross margins decreased 18 pp YoY to 25% vs our estimate of 40%, primarily due to one-time acquisition related expenses

G&A expenses rose 53% YoY (Q1: up 36%), in line with our estimate. EPS turned negative ($0.001 to -$0.012), 27% below our estimate, primarily due to lower revenue and acquisition-related expenses

CAPEX surged nearly 200% to $29M, driven primarily by the FlexEnergy acquisition in Q2As a result, debt/capital increased QoQ (from 7% to 23%) but remained below the sector average of 33%

Can raise up to $10M from in-the-money options and warrants

Oil & Gas Price Outlook

Consensus oil price forecasts (near and long-term) are well above historic averages of US$70/bbl oil and $2.6/mmbtu gas), implying a positive outlook for the oilfield services sector

E's revenue generally tracks changes in oil and gas prices, and sector CAPEX spending. Historically, a 1.0% change in oil and gas prices has led to a 1.9% change in E's revenue

FRC Projections and Valuation

With Q2 revenue coming in below expectations, we are lowering our full-year estimate

As a result, our DCF valuation decreased from $3.51 to $3.04/share

We are reiterating our BUY rating, and adjusting our fair value estimate from $2.58 to $2.42/share (the average of our DCF and comparables valuations). E’s Q2 performance reflects the ongoing softness in oilfield activity, yet E has outperformed the S&P Oil & Gas Equipment & Services Index, highlighting its operational resilience. The recent acquisition of FlexEnergy’s Canadian operations strengthens E’s market position and adds a new revenue stream. With a strong balance sheet and moderate leverage, we believe E is well-positioned to navigate sector volatility and capitalize on a potential rebound in oil prices and CAPEX in 2026.

Risks

We believe the company is exposed to the following key risks (not exhaustive):