Secure Energy Services Inc.
(SES-T) C$6.26
Q2/22 Results
Event
We are updating our estimates following Secure's Q2/22 conference call.
Impact: NEUTRAL
Q2/22 Results: Secure reported Q2/22 net revenue, EBITDAS net of transaction costs, and EPSD of $355.0 million, $117.0 million, and $0.17/share, respectively, compared to our estimates of $345.6 million, $114.0 million, and $0.14/share. Details on page 2.
Conference Call Takeaways:
2023 Capital Allocation Framework Coming with Q3/22 Results: Secure hit the high end of its debt reduction target in Q2/22 of less than 2.5x debt to EBITDA, which has been the company's primary capital allocation priority since it acquired Tervita at the end of Q2/21.
Competition Tribunal Resolution Expected in Six to Nine Months: Closing arguments were heard in June 2022 and based on past cases, management expects a resolution in six to nine months. When asked if there was anything in the Competition Bureau's closing arguments that may materially impact Secure's asset base or EBITDAS generating potential, management suggested that there were no major surprises in the hearing.
Estimate Changes: Our 2022 and 2023 EBITDAS estimates increase by 2% and 6%, respectively to reflect Q2/22 actuals, faster-than-expected synergy realizations and improving industry conditions. Details on page 3.
TD Investment Conclusion
In our view, Q2/22 represents another operationally strong but relatively uneventful quarter for Secure. With estimates moving up modestly, our target increases to $8.50 from $8.00 previously. Secure continues to trade at a premium to the peer group, with our revised estimates implying a 2023E EV/EBITDAS multiple of 5.2x, compared with our coverage-group average of 4.0x. Given the company's production-weighted business model, this relative premium is admittedly justified 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.