Post by
retiredcf on Feb 24, 2022 6:57am
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EQUITY RESEARCH
February 24, 2022 Earnings Update
ENERFLEX LTD.
Q4/21 Results: Revenues And EBITDA Top Estimates
Our Conclusion
Despite lingering margin pressures, Enerflex’s Q4 EBITDA generation was
better than expected, with a steady increase in quarterly revenues. While this update has a number of positives, the continued margin pressures could be taken negatively, in our opinion. We continue to believe that the combination with Exterran will see 2022 largely remaining as a transition year for the business and the stock. While we remain intrigued at the longer-term potential of the combined business and commodity price tailwinds for the sector, we maintain an investment preference for E&Ps, given the enhanced return of capital initiatives and relative valuations. Our 2022 and 2023 EBITDA estimates slightly increase following this update and we, therefore, increase our price target to $9.50 (from $9 prior); however, we maintain our Neutral rating.
Key Points
EBITDA generation better than expected, but margin weakness
lingering. Adjusted EBITDA came in at $42MM for the quarter, which was
well above consensus of $34MM and our estimate of $33MM. Revenues of $321MM were up considerably versus Q3/21 ($231MM); however, EBITDA margins tracked lower to ~12%, down from 14% in Q3/21.
Bookings activity increased versus Q3/21 and in line with previously
disclosed information. Total Engineered Systems bookings came in at
$324MM for Q4 (up from $191MM in Q3/21), which was previously disclosed alongside the Exterran announcement on January 24. The increase was primarily led by the Rest of World segment, owing to the natural gas infrastructure project that was disclosed with Q3/21 results. Bookings for Canada were up by $18.5MM versus Q3/21, while U.S. bookings were lower by $12MM Q/Q.
Energy transition opportunities intriguing, but remain a longer-dated
option in the shares. EFX noted it booked several hydrogen compression
units and has started building three ultra-low-methane-emitting electrified
rental units, along with continued progress on CCUS infrastructure
opportunities. While associated revenues were not disclosed, we remain
intrigued at EFX’s future potential to participate in the energy transition, given its expertise in modular solutions that can provide a low-carbon footprint.
Exterran transaction remains on track and 2022 investments will set the
stage for 2023. Management noted the expected closing of the Exterran
transaction remains targeted for Q2 or Q3/2022, which is in line with previous messaging. Despite the benefit to free cash flow expected in 2023, we remain cautious on the negative free cash flow of ~US$200MM in 2022 for the pro-forma business, due to a combination of in-flight growth projects and interest charges.