Canaccord - Buy , Target C$13.25 ?Precision Drilling Corporation | John Tasdemir, 1.713.331.9447
PD : TSX : C$11.45 | C$3,156.4M | Buy , Target C$13.25 ?
• Placing PD on Focus List; raising target price to C$13.25
Investment recommendation
The winter drilling season in Canada has been stronger than our expectations as
drilling rig activity is up 17% y-y YTD, outpacing our 10% forecast. We continue to
like PD’s position as the most active driller in North America; it has the second
highest mix of high-performance rigs (68% of fleet) and currently has over 60% of
its fleet drilling for liquids and 80% drilling horizontally. We are selecting PD as
our top pick as we believe valuation is relatively attractive (trades at 5.4x 2012E
EV/EBITDA vs. HP and NBR closer to 6.1x) given its mix of high performance rigs,
near-term earnings growth, and longer-term position as to capture market share
with its new rigs technology. We are also increasing our target price to C$13.25
from C$12.25 (based on 6.2x 2012E EV/EBITDA) as this target multiple is more
in line with its large cap drilling peers.
Investment highlights
• Dayrates improved by $636 y/y in Canada and $510 q/q in the US in Q4/10,
and we expect spot dayrates will continue to improve in Canada in 2011 with
modest increases in the US.
• Continued demand for high performance rigs led PD to increase its 2011
capex budget to $423M. The company plans to build 5 additional new builds
and upgrade 8-12 rigs.
• We believe numbers could move higher as PD benefits from increasing
oil-directed activity in Canada, higher demand for its Completion and
Production services, impact from new builds and upgrades, and higher
drilling dayrates.