Q3: 155% Revenue Growth w 2018 Capex Guide Exciting…Can I just start by saying how much I think this is directly driven by Ronnie and Bharat behind this turnaround on top of the overlying sector recovery. Just think about the guidance they gave after Q2, saying that 2H revenue would be less then 1H and they grow revenues in Q3 QoQ even with the strengthening CAD. I love a Underpromising and Overdelivering management!!! Lets Dig in;
Revenue
Revenue of 52.5M up 155% YoY and 3% QoQ. There is now way that I thought they were going to be able to put up QoQ revenue growth. Just shows how strong the bounce in September was in the oil patch when the WTI Oil price came back. (Jul 17.0M, Aug 17.99M, Sept 18.6M). Still Doesn’t even include the Marten Fairy Terminal that will start generating revenue in Q4.
Gross Margin
Only number I was less then blown away with. A lot of the conference call will focus on this tomorrow. If you are a believer that oil is back and you look at a 3yr avg for gross margin 2012-2014 (inclusive of Dep & Amort) you get a number of 18.30% vs (YTD 2017 9.5%). So you still have run room for a doubling of Gross Margins!!!
Selling General & Admin
Once again, Ronnie & Bharat I find it so amazing they can continue to grow revenue so aggressively while controlling SG&A. As a percentage of sales since management shakeup; (2016 Q3: 13.73%, Q4: 13.44%, 2017 Q1: 10.92%, Q2: 9.58%, Q3: 8.62%)
Profitability
Continued EBITDA improvement of over 4.5M with a shrinking EPS loss thanks to a lowering of Finance costs. Was hoping for a bit better number here but once the cranes get purchased in 2018 you should see the next ramp in profitability as percentage of revenue from subcontracts comes down.
True Book Value
I bring this up every time because I think it is important. Tangible Book Value Per Share is 0.63/share but if you include the FMV adjustment on PPE you get another 24.3M in value bringing the Book Value to 1.05/share. It should never trade below this price!
Outlook
Telling given the conservative nature of this new management team that they are now saying for 2018 they expect higher rig counts and full fleet activation by Q1 2018!!! – HUGE and of course higher revenues, gross profit, EBITDA and EPS growth. (Analysts estimates currently don’t reflect that). Just saying…
On Valuation
Raising my assumptions for 2018 revenues in my model up to 220M slightly offset by a lowering of Gross margin assumption gets me to an EBITDA figure of 28.5M still. Using a 6-8x EV/EBITDA assumption and a 60M net debt number I get a 1.80 – 2.40/share range or 2.10/share Target Price or 233% upside!!!
…you don’t look to hire 100+ people unless you are seeing growth in your business
LONG