Disclosure: Enterprise Group, Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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Gross and EBITDA margins exceeded our estimates by 1 pp, and 3 pp, respectively.
Revenue growth came from new contracts with tier-one clients. Per consensus estimates, growth in North American oil and gas CAPEX will ease to 2.2% in 2024, down from 19% in 2023.
Recently closed a $7M bought-deal equity financing to expand its rental equipment fleet, signaling management's expectation of continued revenue growth in 2024.
Upcoming catalysts include Q1 results, and revenue growth stemming from the deployment of newly acquired equipment. Note that Q1 and Q4 are historically stronger quarters due to seasonality.
Enterprise vs Larger Players
Source: FRC/S&P Capital IQ
E is up 118% YoY, and is one of the best performing stocks on our list of oilfield services companies
E has higher margins than sector averages
Financials
2023 revenue was up 25% YoY, missing our estimate by 7% due to forest fires in Alberta and B.C., as well as project delays caused by warm weather in Q4
EBITDA margins exceeded our estimate by 3 pp, primarily driven by lower G&A expenses
Source: FRC/Company
EBITDA was up 61%, missing our estimate by 1%
EPS (adjusted) was up 140% YoY, missing our estimate by 5%
E’s margins remained well above sector averages
CAPEX increased 171% YoY to $15M, driven by heightened client demand necessitating new equipment purchases
Source: FRC/Company
As a result, FCF declined, and debt to capital increased 4 pp to 47%
Can raise up to $2.27M from in-the-money options
Oil & Gas Price Outlook
Source: FRC/Sproule/GLJ
Consensus price forecasts (near and long-term) are well above historic averages, implying a positive outlook for the oilfield services sector
E's revenue generally tracks changes in oil and gas prices, and sector CAPEX spending
Source: FRC/Various
Historically, a 1% increase in oil and gas prices, and CAPEX spending, has led to a 2.5% increase in E's revenue
Conversely, a 1% decrease in these factors has resulted in a 1.3% decline in E’s revenue
Based on consensus CAPEX spending, and oil/gas prices forecasts, we anticipate 5% organic revenue growth in 2024
FRC Projections and Valuation
We are not making any material changes to our near-term forecasts
Source: FRC
However, we are raising our long-term revenue/EPS forecasts to account for growth attributed to increased CAPEX
As a result, our DCF valuation increased from $1.98 to $2.08/share
Source: FRC/S&P Capital IQ
E’s EV/EBITDA (forward) is 4.3x vs the sector average of 5.4x, reflecting a 20% discount
E’s EV/revenue (forward) is 1.6x vs the sector average of 1.3x, reflecting a 20% premium
Given E's higher margins compared to sector averages, we believe E warrants a premium
Source: FRC
Our weighted average valuation increased from $1.26 to $1.33/share
We are maintaining our BUY rating, and raising our fair value estimate from $1.26 to $1.33/share. Upcoming catalysts include Q1 results, and revenue growth stemming from the deployment of newly acquired equipment.
Risks
We believe the company is exposed to the following key risks (not exhaustive):
