TSX:EFX - Post Discussion
Post by
retiredcf on Aug 12, 2023 12:58pm
RBC
August 10, 2023
Enerflex Ltd.
2Q23 - Conference call takeaways
TSX: EFX | CAD 10.69 | Outperform | Price Target CAD 15.00
Sentiment: Neutral
EFX hosted its 2Q23 results conference call following the release of its results last night (note here). Please see below for additional details.
Merger synergies largely realized; incremental cost saving actions upcoming. EFX has captured US$50MM out of the expected US$60MM synergies related to the Exterran merger, with the remaining US$10MM to be captured within the next 12-18 months. The company continues to streamline its global operations, and expects to consolidate its manufacturing facility count from 5 to 3. EFX expects the facility consolidation to reduce COGS by $10-20MM annually, closure costs of $10-20MM.
Expects $50MM FCF in FY23. The company expects to generate $50MM of FCF in FY2023, with working capital to moderate by $50MM in 2H23 after a draw in 1H23. The company remains focused on using surplus free cash flow for continued deleveraging, and is targeting Net Debt/EBITDA below 2.5x by YE23.
Capex spending breakdown. 2H23 capex is expected to be about $40-42MM/qtr, with $93MM spent in 1H23. The company's $175MM FY23 capital and PP&E spending breaks down approximately as: $60MM maintenance, $12MM growth for Latam and US rental fleet, $60MM BOOM carryover (which was spent largely in Q1), about $43MM for facility upgrades to deliver its $1.4bn Engineered Systems backlog.
Operational update. Enerflex provided commentary for each business segment:
• Engineered Systems: The company experienced some delays in customer projects in 2Q23, which negatively impacted margins and revenue, with EFX remaining focused on regaining lost time on those projects to improve margins in 2H23. Bookings in recent quarters have been strong, and go-forward normalized levels are up for debate, but Enerflex is optimistic it can support 2Q23 levels ($322MM) going forward. Enerflex noted its footprint, products, and energy transition capability are different today versus prior years.
• Energy Infrastructure: The company's US contract compression operations had utilization rates of 96% in 2Q23, with pricing traction.
• After Market Services: Seeing notable strength in gross margin as customers catch up on maintenance spending and spare part inventories.
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