Secure Energy Services Inc T.SES

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[retiredcf]

Raise their target to $8.00. GLTA

Secure Energy Services Inc.

(SES-T) C$6.26

Q1/22 Results

Event

Secure reported Q1/22 results.

Impact: POSITIVE

Q1/22 Results: Secure reported Q1/22 EBITDAS net of transaction costs of $117.0 million, 8% above our estimate of $108.8 million (transaction costs were $9.0 million). The beat was largely driven by stronger-than-expected revenues (+18%) and segment gross margins (26.9% vs. our estimate of 20.5%) for its Environmental and Fluids Management segment. The company's Midstream Infrastructure segment performed broadly in-line with our expectations. Details on page 2.

Debt Reduced Materially in Quarter: Secure repaid $90.0 million of debt in the quarter, using funds flow from operations ($107.0 million) as well as proceeds from non-core asset sales ($22.0 million). Management disclosed that these assets included vacant land and a consulting business that generated less than $2.0 million of EBITDAS/year.

Facility Rationalization, Asset Optimization to Continue: The company continues to guide to the realization of $75.0 million in annualized synergies by year end, with $22.0 million remaining.

Estimate Changes: In addition to updating our estimates for actual Q1/22 results, we have made modest improvements to our Environmental and Fluids Management segment forecast. This has resulted in a 3% and 4% increase to our 2022 and 2023 EBITDAS estimates, respectively. Details on page 3.

Conference Call: Management will host a conference call at 11:00 a.m. ET, dial: 1-888-664-6383.

TD Investment Conclusion

Based on the stronger-than-expected quarter, increased estimates, and progress toward its debt reduction targets, our target increases to $8.00 from $7.50 previously. Secure continues to trade at a premium to the peer group, with our revised estimates implying a 2023E EV/EBITDAS multiple of 5.6x, compared with our coverage-group average of 4.8x. Given the company's production-weighted business model, this relative premium is deserved, in our view. As a result, Secure remains BUY-rated, but we continue to believe that other companies in our coverage universe have more compelling valuations at this time.