Secure Energy Services Inc.
(SES-T) C$5.88
Q3/21 Results Event
Secure reported Q3/21 results. Management will host a conference call at 11:00 a.m. ET, dial: 1-888-664-6383.
Impact: POSITIVE
Q3/21 Results: Secure reported Q3/21 EBITDAS net of transaction costs of $87.0 million, compared with our estimate of $96.8 million. Importantly, our estimate featured $10.0 million of one-time transaction costs compared with actual transaction costs of $18.0 million. After normalizing for this difference, we view the quarter as operationally in line. Details on page 2.
Estimates Increase Modestly on Stronger-than-expected Progress Toward Synergy Goal: Secure maintained its guidance for annualized synergies of $75 million by the end of 2022, with $31 million in annualized synergies realized at the end of Q3/21 and guidance for $35 million to $38 million by year-end. Importantly, synergy realization is occurring at a modestly faster pace than our 2022 forecast that assumes $40 million in synergy realization including partial year inclusions of synergies obtained in 2022. As a result, our 2022 EBITDAS increases 2%, with 2023 essentially unchanged. Details on page 3.
Capital Program Update: 2022 sustaining capital guidance of $55 million is modestly above our estimate of $40 million, with the difference entirely related to landfill expansions that we were not contemplating. We are maintaining our growth capital forecast of $60 million. Details on page 3.
Competition Bureau Resolution Timing: A hearing is scheduled for Q2/22 and findings by 2022 year-end, with management reiterating that the outcome is not expected to be material to the company's assets or ability to generate EBITDAS. We believe that a successful outcome would eliminate potential investor concerns.
TD Investment Conclusion
Secure remains one of our best ideas for sector exposure, following the acquisition of Tervita, given the improved competitive landscape of its core business, its ability to achieve meaningful transaction synergies ($75 million), its free-cash-flow-generating capabilities, and the relative stability of its operating and financial performance. At the current share price, Secure is also a likely candidate for S&P/TSX Composite Index inclusion, separating the company from the rest of the coverage universe from a market-relevance perspective, in our view. As a result, we are maintaining our BUY rating and $8.00 target price.