Post by
retiredcf on Feb 10, 2023 8:32am
TD 2
Precision Drilling Corp.
(PD-T, PDS-N) C$83.30 | US$62.03
Q4/22 Results
Event
We are updating our estimates following management's conference call.
Impact: POSITIVE
Q4/22 Results: Precision reported Q4/22 EBITDAS of $166.5 million, 7% above our estimate of $155.9 million. Operationally, we view the quarter as a beat. Details on page 2.
Conference Call Takeaways
Q1/23 Margin Guidance: For Q1/23, management is guiding to another US$2,000/ day sequential increase in the U.S. due to continued pricing gains and relatively flat margins in Canada that balances the pricing gains, against the negative impact of rig mix (a higher percentage of smaller rigs active), seasonal factors (sequential reduction of boiler revenue in March) and several contracts that are expected to reprice at the end of Q1/23.
2023 Capex Details: Precision's $235 million in 2023 capital-spending guidance includes $30 million for the certification of rigs and $17 million to upgrade a Canadian DC/SCR triple to a 1500 HP super triple that is backed by a three-year contract and will generate a base dayrate in the ~$44,000 to ~$46,000/day range. After normalizing for these items, capital spending is up 7.4% year-over-year, which is likely a function of higher year-over-year activity expectations.
Natural-gas-directed Outlook: Precision has re-contracted 12 U.S. natural-gas- directed rigs in Q1/23-to-date, with pricing commensurate with its increasing gross margin per day outlook and contract terms ranging between six months and two years.
TD Investment Conclusion
Despite the modest beat and reiteration of U.S. margin expansion in Q1/23 on the conference call, we have elected to largely maintain our outlook with the quarter. Our conservatism arises from concerns around what the recent weakness in North American natural-gas commodity pricing might mean for drilling activity in natural- gas-directed plays and how that might affect pricing power. As a result, we are not making any material changes to our 2023 and 2024 EBITDAS estimates, though we are shifting estimates within the quarters, to increase H1/23 estimates at the expense of H2/23 estimates. Details on page 3. We continue to have high confidence in the management team's ability to execute on its strategic priorities. In this context, we are maintaining our BUY rating and $145.00 target price.
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