2018:Trading <3.0x EBITDA after Great Strategic Acquisition.Well I sure feel perplexed given the share price response to a great strategic deal that gets them into the hottest oil basins in North America for only 4x EBITDA when issuing only 5M in incremental shares. As a result, I was buying this name aggressively Friday and here’s why;
Core Business – Old STEP.TO
The core Step business just put up a 2017 of 123.5M in EBITDA up 1,885% YoY on revenue growth of 227%. All that for a little over 4x EBITDA is ridiculous all with net cash on that balance sheet.
Add: Tucker Energy Services
250M in revenue from the growth basins in the states with strategic synergies and client overlap that generated an est. of 72.5M in EBITDA in 2017.
KEY POINT:
“During the nine months ended September 30, 2017, Tucker generated approximately US$6.0 million in Adjusted EBITDA1 per fracturing spread per quarter”
“A full-year deployment of four spreads at the same performance metrics achieved during the nine months ended September 30, 2017 would equate to an illustrative full-year Adjusted EBITDA1 of US$96.7”
Operating potential for Tucker Energy Services for 2018 is well over 120M+ in EBITDA for 2018.
Combined Company – New STEP.TO
A North American diversified energy services company in all the key markets that in 2017 generated 800M in revenue and 200M in EBITDA. All Trading at <3x EBITDA on 2017 numbers!!!
Capital Structure and Financing
Yes they added 300M in debt, so what. You are still looking at an Net Debt/EBITDA range of a little of over 1.0x which still leaves so much room for flexibility. NON ISSUE.
On Valuation
Assuming a continued recovery and asset deployment into 2018 and a tightening in energy service pricing I project out 950M in revenue on a 25% EBITDA margin gets me to 237.5M in EBITDA. Using a 6 – 8x EV/EBITDA multiple I get to a target price of 17.25 – 24.50/share or 20.88/share at the midpoint or 125% upside!!!
Price action made no sense to me Friday and someone was just trying to mark the share price to the financing they did at 9.30/share but I think the broader market shenanigans will subside and this presented one of the best buying opportunities in 2018 so far in the energy space.
LONG