Post by
retiredcf on Apr 29, 2024 8:46am
RBC 2
Their upside scenario target is $150.00. GLTA
April 26, 2024
Precision Drilling Corporation
1Q24 – Takeaways from quarter and investor event
Outperform
TSX: PD; CAD 94.11; NYSE: PDS
Price Target CAD 122.00
Our view: Following PD's 1Q24 results, we hosted an investor gathering with management (CEO, CFO, VP IR) in Calgary. Key takeaways were the strength and differentiation of the Canadian business, PD's commitment to debt repayment & shareholder returns and new rig initiatives. While the US lower-48 rig market remains tepid, we ultimately view dips in PD's shares as buying opportunities. We adjust our 2024/25 EBITDAS estimates by -1%/-5% and maintain our Outperform rating and $122 price target.
Key points:
Reiterating constructive view on PD shares. We remain constructive on PD shares due to: 1) leading Canadian market share, where stronger rig demand has led to utilization and pricing improvements; 2) Y/Y International gross margin growth in FY24, underpinned by eight rigs on long-term contracts; and 3) pathway to organic de-leveraging through FCF with increasing shareholder returns.
Canadian rig market exposure is a differentiator. Optimism for the Canadian rig market comes from: The 590mbbl/d Trans Mountain Expansion pipeline coming online in May and the First Phase of LNG Canada commissioning in 2025. We expect PD to generate $353MM gross margin in FY24, up 20% y/y. PD is also piloting the first NOV ATOM RTX system which uses robots to remove personnel from the rig floor red zone.
Lowering our US outlook. US lower-48 rig activity has been softer than Canada. Low natural gas prices and customer consolidation make it difficult for us to see PD meaningfully increasing its rig count from current levels of 39 through this year. Our FY24 gross margin forecast decreases by 7%. We see PD generating $202MM gross margin in FY24 with 39 active rigs, versus $348MM in FY23 with 49 active rigs.
Debt repayment near-term priority with line of sight to returns. In 2024, PD still expects to repay $150–200MM of debt and return 25–35% of its FCF to shareholders as buybacks. PD expects to continue moving toward returning 50% of FCF to shareholders, which could eventually include a dividend. Our FY24 FCF of $251MM maps to an 18% yield vs. land driller median of 16%.
Estimate revisions. We lower our 2024/25 EBITDAS estimates by -1%/-5% to $598MM/$620MM (Street $565MM/$626MM) due to lower US rig counts, but model a 4-5 rig recovery y/y in the US. See Exhibit 1 for details.
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