Scotia Target Lowered To $11 Poseidon Concepts Corp.
(PSN-T C$13.22)
Huge Q3 Miss Overshadows New Products Launch
Vladislav C. Vlad, MBA, P.Eng. - (403) 213-7759
(Scotia Capital Inc. - Canada)
vladislav.vlad@scotiabank.com
Sam Devlin - (403) 213-7332
(Scotia Capital Inc. - Canada)
sam.devlin@scotiabank.com
Div. (NTM)
$1.08
Div. (Curr.)
$1.08
Yield (Curr.)
8.2%
Rating: 3-Sector Underperform
Target
1-Yr:
C$11.00
ROR
1-Yr:
-8.6%
Risk Ranking: High
Valuation: 7.2x our 2013 EV/EBITDA estimate.
Key Risks to Target: Commodity prices, labour supply, access to supplies, weather, contract risk, and FX.
Event
¦
Q3 EBITDA of $26.6M was 53% below our $56.6M estimate and consensus of $57.3M due to substantially lower than anticipated utilization, which impacted pricing and margins in all operating areas. Following the results, an analyst meeting was held at PSN's office.
Implications
¦
Management lowers 2012 EBITDA guidance to $145M (midpoint), down 31%. We cut our 2013 EBITDA estimates to $127M (-53%) on a 44% reduction in operating time and roughly 15% lower pricing YOY. Management also trimmed 2012 spending to $35M (from $60M), as tank construction was curtailed at the end of August to 440 tanks.
¦
New product suite strengthens PSN's market position; "pull" customer response is encouraging but will take time to build to scale. Management's ability to innovate continues with the rollout of in-tank heaters, remote fluid monitoring, and water transfer solutions. We model $15M of revenue from non-tank rentals in 2013 @ 70% margin.
Recommendation
¦
Our price target reduces to $11 (from $20). We downgrade PSN to 3-SU from 1-SO and are of the view the dividend is sustainable. PSN's attractive yield should act as a support for the stock. The board approved a DRIP, subject to TSX approval. We forecast 2013E FCF of $100M and ~$65M in cash dividends, under a 30% DRIP participation rate; excluding DRIP participation, cash dividends would be roughly $90M.
Pertinent Revisions
New
Old
Rating:
3-SU
1-SO
Target:
1-Yr
$11.00
$20.00
EBITDA12E
$143
$214
EBITDA13E
$127
$268
New Valuation:
7.2x our 2013 EV/EBITDA estimate.
Old Valuation: 6.0x our 2013 EV/EBITDA estimate.
Qtly EBITDA (M)
Q1
Q2
Q3
Q4
Year
EV / EBITDA
2010A
2011A
$9 A
$7 A
$20 A
$28 A
$65
16.1x
2012E
$44 A
$46 A
$27 A
$27
$143
7.9x
2013E
$35
$29
$31
$31
$127
8.8x
(FY-Dec.)
2009A
2010A
2011A
2012E
2013E
Cash Flow/Share
$1.24
$1.58
$1.42
Gross Margin
87.8%
86.4%
79.4%
IBES CFPS 2012E: $2.05
Curr. BVPS
$1.22
IBES CFPS 2013E: $2.63
ROE12E
160.04%
Historical price multiple calculations use FYE prices. Source: Reuters; company reports; Scotiabank GBM estimates.
All values in C$ unless otherwise indicated.