CIBCEQUITY RESEARCH
May 3, 2023 Flash Research
ENERFLEX LTD.
Q1/23 First Look: Strong Print With Continued Bookings Growth
Our Conclusion
Enerflex posted a headline EBITDA beat versus consensus estimates and
management indicates that it has achieved US$50MM of the US$60MM in
expected synergies from the Exterran acquisition. EBITDA, spending, and
net debt guidance was unchanged for 2023 while two key projects in the
Middle East came online during the quarter which should boost revenue
going forward. We expect that de-leveraging will be the primary focus for the
remainder of 2023 now that two major projects are operational, and despite
the pullback in natural gas pricing, we note the continued momentum in
engineered systems bookings as being a positive result. We expect the
EBITDA beat, gross margin improvement, and booking momentum should
support the stock with this update.
Key Points
Headline metrics ahead of consensus. Enerflex reported Q1/23 EBITDA of
$123MM, which was ahead of our estimate of $101MM and the Street at
$113MM. Gross margin of 20% was better than Q4/22 at 18%. Engineered
systems bookings increased to $517MM, which is up from $415MM in Q4/22.
EFX reported an engineered systems backlog of $1,542MM, which provides
good visibility for revenue generation through the balance of 2023.
Debt reduction to be prioritized for the remainder of 2023. Enerflex
exited the quarter with net debt of $1.2B (2.9x D/EBITDA) and is maintaining
its forecast for adjusted EBITDA generation of US$380MM to US$420MM in
2023. Management is targeting a debt to adjusted EBITDA metric of less
than 2.5x by year-end 2023. We see this target as likely being met in 2023,
given our recent estimates point to a debt to EBITDA metric of 2.2x.
Startup of Middle East projects should provide a boost to revenue
going forward. The company brought two major projects online in the
Middle East during Q1/23 including a natural gas infrastructure asset and a
build-own-operate-maintain produced water facility, both of which are
underpinned by a 10-year take or pay contract. Work continues on the
cryogenic natural gas processing facility, which is expected to be onstream in
2024.
Synergies on track with potential for additional savings through
optimizing the company’s global manufacturing footprint. The company
has captured US$50MM of the US$60MM of identified synergies as a result
of the Exterran transaction, which was largely expected. Management
indicated that it also plans to close its manufacturing facilities in the UAE and
Singapore in 2023, which could drive incremental synergies