Bullboard - Stock Discussion Forum CES Energy Solutions Corp T.CEU

Alternate Symbol(s): CESDF

CES Energy Solutions Corp. is a Canada-based provider of consumable chemical solutions throughout the lifecycle of the oilfield. This includes solutions at the drill-bit, at the point of completion and stimulation, at the wellhead and pump-jack, and finally through to the pipeline and midstream market. Its core businesses include drilling fluids and production and specialty chemicals. Its... see more

Add To Watchlist

TSX:CEU - Post Discussion

CES Energy Solutions Corp > RBC Raises Target

View:

Post by retiredcf on Nov 07, 2024 7:11am

RBC Raises Target

A bit disjointed and missing a few parts as it was a nightmare to cut and paste. Their upside scenario target is $12.50. GLTA

November 6, 2024

Outperform

TSX: CEU; CAD 8.49

Price Target CAD 11.00 ↑ 10.00

CES Energy Solutions Corp.
3Q24 – Steady execution

Our view: CEU's 3Q24 adj. EBITDAC of $103MM (16.9% margin) was 3% ahead of our estimate. We remain constructive on CEU shares given steady operational execution and solid FCF metrics. We and maintain our Outperform rating with a price target of $11.00 ($10 prior).

Key points:

EBITDAC slightly ahead; Posts a 16.9% EBITDAC margin. CES reported revenue and adj. EBITD of $607MM and $103MM, respectively. Results were 2/3% above our estimates of $595/100MM (Street $587/99MM). EBITDAC margin of 16.9% was 10bps above our 16.8% estimate and increased 190bps y/y range of 15.5-16.5%. CES generated $47MM of pre-dividend FCF (CFO- capex), and returned $53MM to shareholders (dividend+buyback) and its fully diluted share count declined 5% y/y. CEU slightly increased its 2024 net capex budget from $75-80MM to $85MM. The margin rate also exceeded its annual target

Strong operational execution in a challenging market. Canadian revenue increased 16% y/y as production chemical treatment points increased 30% and drilling fluids operating days increased 17%. CES's drilling fluids market share increased modestly y/y to 35%. In the USA, revenue increased 11% y/y as treatment points increased 6%, while drilling fluids operating days decreased 4%, though the company gained a point of market share, to 22%.

Solid FCF metrics. We expect CEU to generate $255MM in pre-dividend FCF and a 14% FC in FY25, representing 62% of EBITDA %, Big 3 OFS avg: 8%). The company's current $0.03/share quarterly dividend is near the low end of its previously stated 10-20% payout of distributable cash flow target range, which sets up for a potential dividend increase given FCF generation and recent share count reduction in our view.

Increasing estimates. For 4Q24, we see $98MM EBITDAC generation at a 16.3% margin reflecting modest negative seasonality. Our 2025/26 EBITDAC estimates increase by 1%/2% to $406/415MM (Street $408/431MM) on slightly higher revenue. Our 2025/26 EBITDAC margin assumptions are 16.7/16.6%. We assume $85MM capex in 2024 and $75MM in 2025.

Maintain Outperform rating with an $11.00 price target ($10.00 prior). CEU currently trades at 2024/25E EV/EBITDA multiples of 5.6/5.5x. We believe the company's operational execution and solid FCF metrics warrant multiple accretion. Our price target is based on a rounded 6.5x (6.0x prior) multiple of our revised 2025 EBITDAC estimate, and we have raised our target multiple by 0.5x on improved margins.

108