Secure Energy 3Q24 – Solid showing
Our view: Secure's 3Q24 results were ahead of the Street expectations and the company is now aiming for the top end of its FY24 EBITDA guidance of $470-490MM. We increase our 2024/25/26 EBITDA estimates by 2%/3%/3% and maintain our Sector Perform rating with a $17 price target ($15 prior).
Key points:
3Q24 financial results. Adj. EBITDA of $127MM was 6% ahead of the Street, on an 8% revenue beat. FCF (CFO-capex) of $120MM was ahead of our estimate.
Targeting top end of 2024 EBITDA guidance. SES now targets the top end of its FY24 Adj. EBITDA guidance of $470-490MM. SES maintained its FY24 sustaining capex/ARO of $60MM/$15MM, and growth capital plan of $75MM for a produced water pipeline connection and processing equipment for phase three at the Clearwater terminal. We have increased our 2024E EBITDA to $490MM, which implies $117MM in the fourth quarter.
2025 guidance forthcoming. Secure plans to issue 2025 EBITDA and capital guidance in December. For now, our 2025 EBITDA estimate of $515MM assumes ~7% organic y/y revenue growth, with about $15MM from recent growth project contribution, partially offset by about $12MM from assets sold in early 2024. For 2025 capital, we assume $70MM for maintenance, $15MM ARO, and $75MM growth. We currently expect SES to generate $250MM FCF in 2025 (CFO-capex), for a 7% yield of market cap and 49% conversion of EBITDA.
Maintain Sector Perform rating with a $17 price target ($15 prior). Our $17.00 price target is based on a 50/50 blended EV/EBITDA multiple and discounted cash flow methodology. We apply an 8.0x (7.5x prior) multiple to SES's 2025 EBITDA and have increased our multiple on a slightly higher growth outlook. Our price target maps to a 9.0x multiple of Secure's 2024E EBITDA. Secure trades at 8.0x/7.6x 2024E/25E EV/EBITDA multiples.