Following Friday’s release of Precision Drilling Corp.’s year-end financial and operational update, ATB Capital Markets analyst Waqar Syed sees “solid” deleveraging and “positive” Canadian and international activity trends.
However, calling its near-term forecast for its U.S. segment as a “negative,” he lowered his earnings before interest, taxes, depreciation and amortization (EBITDA) forecast through 2026.,
“Adjusting our estimates to align with guidance, we have reduced the average active rig count by approx. four rigs per quarter for 2024, though our forecast for the Canadian and International markets is largely unchanged,” said Mr. Syed. “Year-end financial updates painted positive color for Q4/23 as the share-based-compensation and asset decommissioning charges came in below our estimates. Therefore, our 2023 EBITDA was increased 1.4 percent despite one to two rig decrease for the U.S. and Canada markets. For 2024, 2025, and 2026, our EBITDA decreased 6.0 per cent, 9.3 per cent, and 9.4 per cent, respectively, owing to a negative revision to PD’s U.S. activity forecast.
“Overall, the operational and financial updates were a mixed bag, and while the EBITDA estimate is lowered, which is a negative, the Company continues to generate solid FCF, and its FCF outlook and debt reduction targets are unchanged, which is a key positive.”
The analyst does expect better-than-anticipated results for Precision’s 2023 fourth quarter, raising his EBITDA projection to $143.3-million from $135-million previously due to lower share-based compensation and a decommissioning charge.
“PD successfully paid off $152-million of debt in 2023, meeting its target of $150-million, and remains committed in deleveraging with the target to repay $500-million between 2022 and 2025,” he added. “The Company also allocated $30-million for share buybacks in 2023 and we anticipate this allocation to increase in 2024. PD will release more details on its capital allocation plans in early February. We forecast PD to generate $273-million in FCF in 2024. The Company should have ample capacity to pursue shareholder return strategies on top of substantial deleveraging.”
Maintaining an “outperform” recommendation for the Calgary-based company’s shares, Mr. Syed cut his target to $126 from $140. The average target on the Street is $128.16.
Others making changes include:
* Piper Sandler’s Luke Lemoine to US$100 from US$107 with an “overweight” rating.