TSX:EFX - Post Discussion
Post by
retiredcf on Mar 06, 2023 9:34am
RBC Report
Their upside scenario target is also raised to $20.00. GLTA
Outperform (prev: Sector Perform) TSX: EFX; CAD 9.24
Price Target CAD 16.00 ↑ 12.00
Enerflex Ltd.
4Q22 – Listen for the music through the noise: Upgrading to Outperform
Our view: 4Q22 results were noisy given the October close of the Exterran acquisition. We believe Enerflex has achieved two of our three key criteria for re-rating, with the third in sight. Therefore, we are comfortable upgrading the stock to Outperform from Sector Perform and raising our price target to $16 from $12.
Key points:
Keys to re-rating: Two of three largely achieved; final on track. We believe the keys to re-rating for Enerflex’s shares are: 1) execution on its near-term BOOM project build-out; 2) improving macro backdrop; and 3) achievement of financial leverage targets.
• Energy Infrastructure (EI): Capital projects substantially complete. Enerflex completed three of its four in-flight infrastructure projects. Completed projects are: 1) BOOM water facility with a 4-year take-or-pay contract; 2) natural gas infrastructure asset with a 10-year take-or-pay contract; and 3) BOOM produced water facility with a 10-year take-or-pay contract. Work has recommenced on its cryogenic natura
• Improving macro backdrop, with strong Engineered Systems bookings. Bookings of $415MM mapped to a book-to-bill ratio of 1.1x. Bookings increased 19% q/q and 28% y/y. Enerflex does not provide booking guidance, but on the call it noted that its booking pipeline remains strong and it has an internal target to achieve similar bookings year-over-year in 2023 ($1.3Bn in 2022).
• 2.5x net debt/EBITDA target looks achievable. Given that net debt levels ended 2022 at $1.1Bn, we see flexibility to achieve its 2.5x financial leverage target by YE23. At the midpoint of adj. EBITDA guidance of about $520MM, EFX generates about $200MM discretionary FCF.
Noisy results with mid-quarter Exterran acquisition. Adj. EBITDA was 14% below our expectation (11% below Street), primarily driven by higher G&A. Synergy realization in 2022 and through FY23 should lead to improved G&A performance. Cash gross margins in Engineered Systems and Services were above our forecast (Exhibit 1).
Adjusting longer-term estimates. We adjust our 2023/24 EBITDA estimates to $527MM/606MM (from $546MM/619MM). Our revised 2023/24 EPS estimates are $1.10/1.71 (previously $1.02/1.31).
Upgrading to Outperform and raising price target to $16. Our price target is based on a 5.5x multiple (previously 5.0x) of our 2024 EBITDA estimate. We raise our target multiple to reflect execution on capital projects and improving macro backdrop, which we believe provide support for an improved valuation vs. current 2023/24 levels of 4.5/4.0x.
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