Post by
retiredcf on Jan 11, 2024 9:04am
RBC
January 10, 2024
Precision Drilling Corporation Highlights from RBC desk presentation
TSX: PD | CAD 71.72 | Outperform | Price Target CAD 125.00
Sentiment: Neutral
RBC hosted Carey Ford (Senior Vice President & Chief Financial Officer) and Lavonne Zdunich (VP of Investor Relations) for a desk presentation; highlights below:
Appears on track to hit debt reduction targets through solid FCF generation. PD met its FY23 debt repayment target of $150MM. PD's focus remains on achieving its total debt reduction target of $500MM from 2022-2025 (implying $242MM remaining over the next two years) and reaching a sustained net debt/EBITDA ratio below 1.0x by 2025. We expect PD to generate $266/277MM of FCF in 2024/25, implying room to increase allocations to shareholders from its current target of 10-20% of FCF. PD plans to provide more information regarding its upcoming capital allocation priorities with 4Q23 results on February 6, 2024. Our 2024/25 FCF estimates map to a 26/27% FCF yield vs Land drilling peer median of 23/25%.
Canadian business is a differentiator. PD is currently running 74 rigs (as highlighted in our latest edition of our Canadian weekly rig tracker here). PD expects its WCSB rig count to reach mid-80's during the winter drilling season, slightly above its peak of ~80 last year. Utilization for high spec Montney rigs in Canada remains elevated, and PD is sold out of super triple rigs in the country. PD has 50% market share in the Montney where activity remains strong due to the expected LNG Canada start up by mid-decade.
International growth should support strong FCF in FY24. PD highlighted its expected 8 rigs international drilling program, following the reactivation of the 8th rig in Kuwait representing a 40% increase y/y. The company highlighted that the majority of the activation capital for those rigs have been spent by the end of FY23 and expects the International EBITDA in FY24 to have a stronger contribution to the company's FCF in FY24. International is about 8% of PD's gross margin in our model for 2024.
Lower visibility in the US. The company highlighted lower visibility this early in the year for increased activity in the US due to a variety of reasons including E&P customer M&A and volatility in commodity prices. PD has worked on diversifying its customer base in the US, following the decline in natural gas and Private drilling activity. Management noted low DUC inventories and impending LNG takeaway capacity as potential factors driving increased demand for drilling rigs through 2024.
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