Disclosure: Evolution PowerX Corp. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
Price and Volume (1-year)
*See important disclosures at the bottom of this report rating and risk definitions. All figures in US$ unless otherwise specified.
E is up 202% YoY, and is the best performing stock on our list of oilfield services companies
Gross margins are higher than the sector average, while debt/capital is lower
In 2024, we anticipate E’s revenue will grow by 13%, outpacing sector growth by 2 pp
Gross margins improved by 5 pp YoY, and were 2 pp higher than our estimate
*Sector: Oil & Gas Machinery Rental and Leasing. Source: FRC / Company
G&A expenses were down 28% YoY, and 15% lower than our estimate, primarily due to reduced employee bonuses
EPS was up 42% YoY, beating our estimate by 6% . CAPEX increased 84% YoY to $5M, driven by heightened client demand necessitating new equipment purchases
Following a $7M bought-deal financing in Q1, debt/capital decreased 11 pp QoQ to 45%. Can raise up to $5.93M from in-the-money options and warrants
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. 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 (unchanged)
Source: FRC
As Q1 margins were higher than expected, we are raising our 2024 EPS estimate by 6%. We are also raising our long-term revenue/EPS forecasts to account for CAPEX-driven growth
As a result, our DCF valuation increased from $2.08 to $2.44/share. Sector valuations are up 14% since our previous report
E’s forward EV/Revenue and EV/EBITDA are 21% higher than sector averages. We believe E’s premium is justified, given its higher margins, lower debt/capital, and higher 2024 revenue growth estimate
We are maintaining our BUY rating, and raising our fair value estimate from $1.33 to $1.62/share. Upcoming catalyst includes revenue growth stemming from the deployment of newly acquired equipment.
We believe the company is exposed to the following key risks (not exhaustive):
We are maintaining our risk rating of 3 (Average
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