CES Energy Solutions Corp T.CEU

Scotiabank Significantly Raise Target

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Scotia’s Jonathan Goldman raised his CES Energy Solutions Corp.  target to $8.50, above the $8.17 average, from $5.85 with a “sector outperform” rating.

“Given the recent track record, you can’t just write off the sizable Q1 beat as an anomaly anymore,” said Mr. Goldman. “Revenue was another quarterly record and margins of 17.3 per cent were the highest since 1Q15. U.S. DF share hit a record 22.6 per cent (and management called out similar trends in PC) supported by secular trends towards higher drilling intensity and share gains, including the introduction/adoption of new products. Separately, we think the SLB acquisition of CHX could provide near-term opportunities to gain share (and talent) as the latter is focused on integration. Management noted Q1 margins were a lofty expectation heading into a seasonally weaker q, but that it would have to consider increasing the guidance range of 14 per cent to 15 per cent. Naturally, we expect higher volumes and better mix to sustain margins above the historical range. The company also continues to become more efficient on working capital: w/c investment as a percentage of LTM run-rate revenue was 27.1 per cent, again below the historical range of 30 per cent to 35 per cent. All this is translating into higher FCF generation/conversion.”