CIBCQ2/21 Results Ahead of Estimates And Visibility To Synergy Realizations In H2/21.
Our Conclusion
We take the earnings print itself as a positive data point, although expect it is likely deemed as a minor event given it represents the last stand-alone quarter for SES prior to its merger with Tervita. EBITDA generation on the quarter was above consensus expectations by a healthy margin though, and was closely aligned with our Street-high estimates. Management guided towards $10MM-$15MM ofcorporate cost savings expected to be realized in H2/21, which we expect could provide a modest lift tosome earnings estimates in the near term, and is likely to be taken favorably. We have made only minor changes to our EBITDA expectations following this update, and maintain our Outperformer rating and $6.50/share price target.
Key Points:
Quarterly results demonstrate a nice beat under final quarter for the stand-alone entity. Q2/21 EBITDA generation of $30MM met our Street-high expectations, and was nicely ahead of consensus at $26MM. Gross margin of $44MM also came in above our expectation of$39MM. Transaction costs during the quarter were quoted at $7.2MM, which could have dragged downsome estimates, but we do see it as appropriate that these are normalized out of recurring earnings.Capital spending was expectedly minimal, coming in at $6.8MM for the quarter.
Synergies and spending guidance for H2/21 likely to favorably impact Street estimates. Management guided towards a $20MMcapital spend for H2/21, with $15MM being marked for sustaining capital. Cost synergies were alsoguided towards $10MM-$15MM for H2/21, realized primarily through headcount reductions and publiccompany cost savings. We included a modest amount of synergies already in our estimates, however,we anticipate this likely drives a positive revision across most Street estimates. SES has targeted$75MM in integration cost savings by the end of 2022, with 60% being attained through operationaloptimizations and 40% through corporate overhead reductions. The H2/21 guidance represents quickwork on corporate overhead savings, and we expect there are likely to be operating synergies thatemerge in the near term as well. We continue to view the combined platform as having strong potentialto exceed the $75MM synergy target over time, and have incorporated some of the expected savings within our estimates.
Operating environment continues to favorably evolve and valuation for SES is still attractive. We maintain a favorable bias towards the operating niche of SES in the current environment, with industryfluid rates increasing and field activity trending higher. We also see SES shares as attractive at currentlevels, trading at 5.0x 2022E EV/EBITDA, which is below historical levels for this entity, and we believe will prove as too lean for the earnings stability of this platform