TD upgrade to $5.50Event CES reported Q2/22 results.
Impact: POSITIVE Q2/22 Results: CES reported Q2/22 EBITDAS of $61.0 million, above our estimate of $46.9 million and consensus of $46.1 million, driven by stronger-than-expected revenue performance across all of its geographies. Details on page 2. 2022 Capital Spending Increased Modestly:
Revised 2022 capital spending includes $25.0 million of maintenance and $25.0 million of growth, above prior guidance for $40 million ($20.0 million maintenance, $20.0 million growth). In our view, the increase is commensurate with the continued improvements in industry outlook. Credit Line Increased: CES increased its credit facility to $315.0 million ($262.5 million previously) with $182.3 million drawn as at June 30, 2022. Importantly, the company continues to invest heavily in working capital in order to avoid the most acute negative impacts of inflationary pressures and supply chain challenges. Ultimately, we believe that this working capital investment serves a strategic purpose in terms of CES' ability to provide its customers with strong operational execution for its customers while maintaining strong margins, but also represents real value that is not currently reflected in the prevailing share price.
Estimate Changes: In light of the stronger-than-expected quarter and a continuously improving macro environment, we are increasing our 2022 and 2023 EBITDAS estimates by 19% and 16%, respectively. Details on page 3. Conference Call: 11am ET, dial 1-800-319-4610. TD Investment Conclusion We continue to have high conviction in the company, including its ability to defend the strong market share gains it made during the 2020 downturn, while maintaining strong margin performance in an inflationary environment. In our view, this implies that the company is a valued partner that is delivering real value to its customers.
As a result, CES remains one of our best ideas for Energy Services exposure, and we are increasing our target price to $5.50/share ($5.00 previously) and maintaining our BUY rating.