Trican Well Service Ltd T.TCW

TD Raise Target by 33%

[retiredcf]

Trican Well Service Ltd.

(TCW-T) C$4.19

Q2/23 Results

Event

Recommendation: BUY

Risk: HIGH

12-Month Target Price: C$6.00 Prior: C$4.50

12-Month Dividend (Est.): C$0.16

12-Month Total Return: 47.0%

We are updating our estimates following management's conference call.

Impact: POSITIVE

Q2/23 Results: Trican reported Q2/23 EBITDAS of $32.9 million, 25% above our estimate of $26.3 million. Details on Page 2.

Conference Call Takeaways:

• Strong Outlook Highlights Potential for Supply Response: Management believes it will reactivate one or two frac spreads within the next 12 months as E&Ps plan for growth in the Montney and Deep Basin to satisfy global LNG demand. Management highlighted that it operates much of the spare capacity in Canada.

• Logistics as a Differentiator: Management highlighted the potential for an increased focus on logistics as a competitive advantage and indicated that it will assess the entire value chain for potential organic growth and/or M&A opportunities.

• Capital Allocation: Management will recommence share repurchases once the NCIB is renewed in October. Additionally, management characterized the annual dividend commitment of ~$34 million as sustainable and will recalibrate it annually to adjust for the impacts of shares repurchased under its NCIB program.

• Pricing Expected to Plateau: Despite some mid-season pricing pressure, Trican's pricing has been relatively stable thus far, and management expects it to remain relatively stable for the remainder of the year.

  Estimate Changes: Our revised estimates now contemplate a modest improvement in margins and additional spread reactivation in H2/24. As a result, our 2023 and 2024 EBITDAS estimates increase by 5% and 9%, respectively. Details on Page 3.

  TD Investment Conclusion

  Trican's share price has increased by ~42.5% since it reported Q1/23 results, and we attribute this strong performance to an increasing confidence level among investors as it relates to the near-, medium-, and long-term outlook for the Montney and other liquids-rich natural gas plays in Canada. Within our coverage universe, Trican has the highest exposure to rising Canadian activity levels and will be a direct beneficiary of an improving egress situation in western Canada (LNG Canada, TMX). In light of our increased estimates and high conviction outlook for activity growth in the Montney, we are increasing our target price to $6.00/share ($4.50 previously), and we are maintaining our BUY rating.