Secure Energy Services Inc.
(SES-T) C$5.72
Q4/21 Results
Event
Secure reported Q4/21 results.
Impact: NEUTRAL
Q4/21 Results: Secure reported Q4/21 EBITDAS net of transaction costs of $99.0 million, compared with our estimate of $97.7 million. Importantly, our estimate featured $7.0 million of one-time transaction costs, compared with actual transaction costs of $10.0 million. After normalizing for this difference, we view the quarter as a 4% beat on an EBITDAS basis. Details on page 2.
Conference Call Takeaways
Capital Allocation Priorities: Debt reduction remains Secure's primary focus in 2022, but it is likely to seek a more normalized approach to capital allocation in 2023 and beyond that would aim to balance "three levers", which are targeted growth capital spending, debt reduction, and shareholder returns (dividend and NCIB). In our view, management's higher-than-expected 2022 growth spending ($45.0 million guidance vs. consensus of $25.0 million) and openness to increased spending in 2023 was a contributor to its negative share-price performance yesterday.
Asset Optimization to Continue: Secure will close 10-12 more facilities, in addition to the 17 announced with the quarter, as it continues to optimize the asset base and work towards its $75.0 million annualized synergy target.
Estimate Changes: Aside from updating our estimates for Secure's 2022 growth capital guidance, we are not making any meaningful changes to our estimates at this time. Details on page 3.
TD Investment Conclusion
Since we came off restriction in July 2021 following the acquisition of Tervita, Secure was one of our best ideas for sector exposure, given the improved competitive landscape of its core business, its ability to achieve meaningful transaction synergies ($75 million per year), its free-cash-flow-generating capabilities, and the relative stability of its operating and financial performance. That said, our revised estimates currently imply a 2023E EV/EBITDAS multiple of 5.7x and FCF yield of 16%, compared with our coverage-group average of 4.5x and 18%, respectively, and we increasingly believe that there is more upward estimate revision potential for companies with higher U.S. exposure. With no material changes in our estimates or $7.50 target price, Secure remains BUY-rated, but has moved lower on our pecking order.