Post by
Nadia6519 on Aug 03, 2023 10:50am
National Bank
Trican Well Service Ltd. Strong & Stable; Worth More
TCW (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$4.13 Outperform (Unchanged) C$6.75 (Unchanged) 67.3%
Q2/23 Operating & Financial Results Q2/23 Results Ahead of Expectations
TCW reported second quarter operating & financial results ahead of expectations, with revenue of $168.2 mln (+10% Y/Y & vs. $167.0 mln consensus) and adjusted EBITDA of $31.9 mln (+66% Y/Y & vs. $25.4 mln consensus), in support of a solid seasonal margin backdrop (19% vs. 13% prior Y). Reflecting the strength of its orientation, the Canadian fracturing market continues to remain sound (arguably better than US-orientations), with a more consistent operating environment characterized by steady activity and pricing beginning to outpace inflationary pressures (rate of change slowing), in support of a more sustainable margin profile. Capital investment during the period ($14.4 mln) was largely allocated towards maintenance capex of its existing fleet, and which supported a $22.7 mln FCF profile (11% annualized FCF yield) that continued to backstop its 4% cash yield and augmented return of capital through buy-back (3% o/s) (MORE WITHIN).
Outlook Intact & Solid
The outlook remains solid, with third quarter activity expected to be strong, and overall positive visibility noted through the second half of the year, while returns should remain intact through what should be a well-balanced market. With that, the company’s capital program remains unchanged at $113.8 mln, allocated to maintenance of its fleet and on-going upgrade of its fifth Tier 4 fleet. That context should continue to support ample free cash flow to pad its stout balance sheet and on-going return of capital initiatives, where its existing NCIB is substantially complete and is expected to be renewed upon its conclusion in October (read-through has to stand towards an increased, or special, dividend over the near to medium-term).
Maintain Outperform Rating & $6.75/sh Target
A strong and stable business was reflected through what is generally a seasonally slower period, and which in association with positive visibility through year-end, continues to validate our thesis that its quality of earnings are not appropriately valued under its discounted valuation to historical (the re-rate of which we believe will continue to be driven through & within its ongoing return of capital); TCW trades at 3.0x 2024e EV/EBITDA (vs. peers at 2.9x) on leverage of -0.1x (vs. peers -0.1x).