Secure Energy
2Q22 results quick take: Strong results with continued debt pay-down
TSX: SES | CAD 6.34 | Outperform | Price Target CAD 9.00
Sentiment: Positive
Our view: We have a positive first impression of SES's 2Q22 results. Revenue, EBITDA, and EPS all exceeded Street expectations by 11% or greater. The company continues to make progress on debt-reduction plans and settled US$77MM of its 11% 2025 senior secured notes. SES has also realized the majority of its merger synergy target. Based on the strong results and outlook, we expect a positive reaction to SES shares in today's trading.
Key points
• Revenue/adj. EBITDA 11%/16% above Street estimates. Revenue was 11%/10% ($34MM/$32MM) above Street/RBC estimates, while adj. EBITDA was 16%/23% ($18MM/$24MM) above Street/RBC estimates. Results were driven by higher adj. EBITDA margins of 36% vs Street/RBC of 34%/32%, driven by cost savings and higher revenue from increased drilling and completion activity. SES also repaid US$77MM of its 11% 2025 senior secured notes.
• 2H22 and future outlook. SES added incremental $14MM (89% of target $75MM) synergies from the Trevita transaction and expects to reach target by 2H22. SES sees increased utilization in midstream processing driven by higher activity and increased volumes at industrial landfills. SES maintained its $100MM FY22 capex spend ($45MM growth, $55MM sustain including $15MM landfill expansion). SES remains focused on reducing debt and ultimately increasing shareholder returns through increased buybacks, dividends or combination.
• Conference call Wednesday, July 27 at 11:00 AM ET; webcast.