CES Energy Solutions Corp.
(CEU-T) C$3.15
Q3/22 Results
Event
CES reported Q3/22 results.
Impact: POSITIVE
Q3/22 Results: CES reported Q3/22 EBITDAS of $73.3 million, above our estimate of $68.7 million and consensus of $68.8 million, driven by stronger-than-expected revenue performance across all of its geographies. Details on Page 2.
Dividend Increased 25%: CES announced a 25% increase to its quarterly dividend. The go-forward annualized dividend of $0.08/share ($0.064/share previously) implies a 2.5% yield. While directionally positive, we do not view this as a competitive dividend yield in the context of several E&Ps with more robust shareholder return frameworks. From a capital allocation perspective, we believe management will focus on debt reduction, as it has invested heavily in working capital over the past two years.
Estimate Changes: With a stronger-than-expected quarter and an elevated macro environment, we are increasing our 2022 and 2023 EBITDAS estimates by 3% and 8%, respectively. Details on Page 3.
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TD Investment Conclusion
The strength in Q3/22 results supports our continued 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 delivering real value to its customers. From a valuation perspective, CES' 2023E EV/EBITDAS multiple is relatively in line with the peer group; however, the company features an above- average 2023E FCF yield, highlighting that the business converts more EBITDAS into free cash flow compared with its peers. As a result, we are maintaining our BUY rating and $5.50 target price.