TSX:EFX - Post Discussion
Post by
retiredcf on Aug 11, 2023 12:05pm
TD
Enerflex Ltd.
(EFX-T) C$10.69
Q2/23 Results
Event
Enerflex reported Q2/23 results.
Impact: POSITIVE
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12-Month Target Price: C$16.00 |
12-Month Dividend (Est.): C$0.10 |
12-Month Total Return: 50.6% |
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Q2/23 Results: Enerflex reported Q2/23 EBITDAS of $141.4 million, 14% above our estimate of $123.9 million and 9.4% above consensus of $129.2 million. That said, SG&A featured a $12.2 million bad-debt recovery, which we were not forecasting and our estimates did not contemplate the positive impact of finance leases (+$12.7mm). This was partially offset by lower-than-expected Engineered Systems segment gross margin (13.0% vs. our estimate of 16.5%). In the context of these differences, we would not characterize the quarter as a significant beat. Details on Page 2.
Guidance Adjusted for Working Capital, Cash Taxes, Growth Capital: Enerflex increased its guidance for non-discretionary expenses to a range of US$180.0 million to US$210.0 million (US$130.0 million to US$160.0 million) to reflect higher working capital requirements, as a result of stronger-than-expected Engineered Systems and Aftermarket Services segment performance, as well as upward revisions to its expectations for cash taxes. It also introduced growth capital guidance of $80.0 million to $90.0 million, which was consistent with our prior forecast. Its guidance for Adjusted EBITDA, synergy capture, net debt-to-EBITDA (<2.5x by year-end), maintenance capital, and contract assets is unchanged.
Estimate Changes: Our 2023 estimates increase to contemplate the positive impact of finance leases going forward, with the $12.7 million in Q2/23 representing an appropriate go-forward run-rate, in our view. This increase is partially offset in 2024, as we take a more conservative approach to long-term margin performance. Details on Page 3.
TD Investment Conclusion
We view 2023 as a catalyst-rich time period for Enerflex, as it extracts synergies from the Exterran acquisition and works towards its leverage targets. Enerflex's share price has increased by 38% since it reported Q1/23 results and now trades at a premium to the peer group on an EV/EBITDAS and FCF yield basis. While we believe that this premium is warranted due to the contracted/recurring nature of its Energy Infrastructure and Aftermarket Services segments that collectively comprise 67% of year-to-date consolidated gross margin, we believe that Enerflex's high-quality attributes have become increasingly priced into its valuation. Our BUY rating and $16.00 target price remain unchanged with the quarter.
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