Canaccord's Comments Poseidon Concepts (PSN : TSX : C$1.52) - Hold - Target:C$5.00
Suspends dividend; lowering estimates on poor visibility; lower price target to C$5.00
Investment highlights PSN announced it has: (1) formed a Special Committee to review and assess operational and A/R-related issues - we note the company will be commencing a formal collection process in appropriate circumstances; and (2) suspended its dividend in consideration of the review being completed by the Special Committee. The board will use results from the Special Committee to prioritize the use of the company's future cash flows toward a resumption of dividend payments vs. debt reduction vs capital expenditures over future periods. PSN did not provide added detail as to the likelihood of a resumption of a dividend, or whether future payments would be consistent with past amounts. Also, (3) made multiple reallocations within its management team. Chairman Scott Dawson has assumed the role of interim president & CEO. Previous CEO, Lyle Michaluk, has assumed the role of interim CFO. Investment recommendation Limited guidance has been provided regarding the magnitude
potentially "significant" write downs of A/R, in addition to potential "reductions in realized pricing and contractions in earnings margins." However, we believe the aforementioned statements and limited overall disclosure means PSN will likely realize significant q-q declines from 3Q12 into 4Q12 and 2013. Therefore, we are lowering our 2012/2013 EPS estimates from $1.04/$1.05 to $0.97/$0.61. Given that the company has suspended its dividend, we believe it should trade more in line with traditional oilfield equipment rental companies. Therefore, we assign a 4.5x 2013E EV/EBITDA target price multiple (in line with the 4.5x average current trading multiple of the company's oilfield equipment rental peers) to derive our $5.00 target price for PSN. We note we do not account for further A/R-related write-offs in our earnings estimates.