Secure Energy Services Inc T.SES

TD Raise Target

[retiredcf]

Given our current SP, this analyst doesn't exactly live life on the edge. GLTA

Secure Energy Services Inc.

(SES-T) C$8.60

Q4/22 Results

Event

We are updating our estimates following management's conference call.

Impact: NEUTRAL

Q4/22 Results: Secure reported Q4/22 EBITDAS of $149.0 million, 4% above our estimate of $142.6 million. However, we note that the reported figure is adjusted for $15.0 million in transaction costs that we were not forecasting. Details in Exhibit 1.

Conference Call Takeaways

• Growth capital is currently focused on brownfield expansion that typically features a higher return profile when compared with greenfield opportunities. Given the strength in overall industry activity, external interest in these types of projects has increased and management believes this provides investors with its strongest returns. That said, management appears to be allocating more capital toward its NCIB at this time.

• The competition tribunal process is ongoing, with no major updates since the previous quarter. We are expecting that some form of resolution will occur in the near term.

  Estimate Changes: We are not contemplating any significant changes in our estimates at this time. Details on page 3.

  TD Investment Conclusion

  Q4/22 represents another operationally strong quarter for Secure. In this context, we are maintaining our HOLD rating are increasing our target price to $9.00 (from $8.50 previously). Our rating remains a relative valuation call (Secure currently features the lowest 2023E FCF yield in our coverage universe) as well as our view that the most meaningful positive Tervita acquisition-related catalysts have already been realized, including its deal synergies target of $75 million, leverage target below 2.5x, and the significant increase in its dividend to $0.40/share annually ($0.03/share previously). Overall, we view Secure (and its acquisition of Tervita, in particular) as a success story in our Energy Services coverage universe, but that its many positive qualities are now reflected in its prevailing valuation.