CES Energy Solutions Corp.
Highlights from the RBC Global Energy, Power & Infrastructure Conference
TSX: CEU | CAD 2.42 | Outperform | Price Target CAD 3.50
Sentiment: Neutral
We hosted Ken Zinger (President & CEO) and Tony Aulicino (CFO) for a break-out session at the RBC Global Energy, Power & Infrastructure Conference. Overall, the company is focused on maximizing free cash flow generation after a period of revenue growth in 2021 and 2022. CEU is rated Outperform.
• FCF positive. At this point in the cycle, the company harvests working capital as activity moderates. The company generated approximately $59MM free cash flow on $77MM EBITDAC in 1Q23 as revenue decreased 1% sequentially and CEU sees continued FCF generation through 2023. Key FCF priorities are reviewing its quarterly dividend, share buybacks, and reducing its net debt/EBITDA leverage to 1-1.5x.
• Drilling fluids market share strong. CEU is currently operating on 142 rigs in the USA (21% market share), including 110 in the Permian (32% market share). In Canada, CEU maintains its 35-40% market share.
• Eyeing adjacent markets. CEU earns about 5-10% of its production chemicals revenue from completions fluids. The company sees opportunity to grow its presence in this $3-4bn market in the US and Canada, which it also views as relatively fragmented. CEU also remains focused on growing its US Gulf of Mexico production chemicals presence through ProFlow, which it acquired for $13.6MM in 2022.
• Managing input costs. CEU remains focused on generating EBITDA margins in the 13.5%-14.5% range. The company continues to manage input costs in relation to pricing and noted logistics costs have been moderating.