As we expected, HP reported a solid C3Q and provided positive C4Q guidance. Additionally, dividend commentary suggested a sustainable dividend for “the foreseeable future.” No dividend cut in ’18. But what if the US industry is transitioning more towards an integrated drilling and well construction model? Maybe HP is maintaining the dividend to have a stronger currency to execute an M&A strategy which will better position the company for this transformational model? Possibly, but we aren’t hearing mgmt buy into the integrated model yet. Regardless, HP is trading at a 70% premium to peers (vs 15-20% historical avg). Reiterate UP. New YE18 $40 PT (8x WR CY19 EBITDA), up from $37 on higher multiple and FCF.
Search Coverage List, Models & Reports
Search Results1-10 out of 293
Excluding $3mm of income from asset sales and early contract termination revenues of $5mm, adjusted EBITDA was $117mm vs Cons/WR ($114mm/$127mm). The beat vs Cons was due to higher-than-guided revenue/day in the US Land ($21.7k/d vs guide of slightly >$21k/d) and better-than-guided gross margin/day in International ($12.4k/d vs updated guidance of $8.5k/d), partially offset by slightly higher-than-expected SG&A. The better-than-expected International margins were “attributable to better than expected performance and one-time adjustments”. Offshore was essentially in line with company guidance. See variance.
While SLCA appears cheap on our ’18 estimates (7.3x WR EBITDA), at least relative to our OFS stocks, we forecast ’19 EBITDA down y/y, thus implying SLCA is actually more expensive on ’19 EBITDA (8.6x). Due to significant pricing pressure from the near doubling of frac sand capacity, SLCA’s EBITDA likely peaks during 1H18. No wonder SLCA is so eager to lock up capacity under long-term contracts. Given our pricing concerns and 26% outperformance vs OSX in past month, we are downgrading SLCA to UP from PP. New $30 YE18 PT (7x ’19 WR EBITDA), up from $28 on higher ’18 FCF.
Not backing out compensation expense but excluding $2.4mm of biz development expense, 3Q EBITDA of $90mm came in just above Cons/WR of $87mm/$88mm. The beat was driven primarily by Oil & Gas (O&G) volumes, coming in at 3.15mm tons vs. Cons/WR of 3.0mm/3.1mm tons. Total Contribution Margin (CM) of $120mm beat Cons/WR of $114mm/$119mm, entirely attributed to O&G. O&G CM/ton of $30.5 compares to Cons/WR of $30.0/$31.1. After adjusting for MS Sand, we think in-basin volumes (which include regional mines) were up low teens % q/q and comprised 66% of total O&G vols in 3Q. Mine-gate volumes were up only slightly. Pricing was up 5% q/q (uncertain if this is average or minegate). See variance for greater detail.
This morning (11/6/17), BHGE announced a $3bn share buyback plan, representing ~8.4% total market cap. Recall (see our 10/22 note), we expected $6.8bn, or $3.4bn annually, to be returned to shareholders during 2018-19 though buybacks and dividends as the company executed a levered recap, likely taking Net Debt / TTM EBITDA to 1-1.5x (adjusted for progress collections), up about one turn from current levels. Assuming all $3bn is executed over the next 12 months and then including the $825mm annual dividend, total cash retuned to shareholders over the next yr would amount to ~$3.8bn (10.7% of market cap). A little more than we expected. And we applaud the buyback over a special dividend at this point, since we calculate BHGE’s implied cost of equity near 20%, well above HAL at 10% and SLB at 13% and only slightly below WFT at 23%. We think the company should be buying back shares aggressively here. Reiterate OP rating and $39 (10x WR EBITDA) YE18 PT.
As we noted last Monday (10/30/17) (link), we liked the setup for WFT heading into Wed’s print. That worked out for us. But after a 22% bounce in the stock last week, now what? Well, we spent all weekend wresting with whether to upgrade the stock. Ultimately, we decided against the upgrade, but it came down to the fact mgmt. sees less urgency than we would like regarding larger divestitures given our still uncertain macro outlook. Additionally, we need more clarity around the new strategic direction, specifics around divestitures, and further details about the remaining $700mm of operational improvements. And since larger divestitures, such as artificial lift and OneStim that account for ~$4bn of deleveraging, seem more like a 2019 catalyst, we still see risk to deleveraging that keeps us at Peer Perform. Maintain YE18 PT of $4.50 (8x ’19 WR EBITDA).
Following the first earnings call with new CEO, Mr. Mike Kearney, FI shares closed +5.9% yesterday (11/2/2017) despite a 3Q EBITDA miss and suspended dividend. We were a bit puzzled by yesterday’s move given the looming negative revisions as the outlook provided on the conference call was uninspiring, but the stock is giving some of that back today. We still see ~40% downside to ’18 estimates. Add to that a fairly rich valuation (17.0x ‘19 EBITDA) and we maintain our UP rating and lower PT to $6.00/share PT (12.5x ’19 EBITDA) from $6.50.
Excluding gain from derecognition of TRA liability ($122.5mm), gain on asset sales ($0.8mm), FX gains ($1.8mm), equity comp ($2.3mm), and other charges ($5.2mm), FI reported Adjusted EBITDA of $2.0mm, below Cons/WR of $4.1mm/$2.8mm. Revenue of $108.1mm (-8% q/q) fell well shy of Cons/WR of $120.4mm/$120.9mm, as Tubular Sales (-52% q/q), US offshore (-13% q/q) and Blackhawk (-3% q/q) were only partial offset by seq growth in International Services (+0.5% q/q) and US onshore (+11%). Tubular Sales drove the miss. Management attributed weakness to GoM headwinds as some projects were deferred to 4Q or postponed to a later date. Despite flattish International Services revenues, segment margins actually improved 390bps q/q to 20.7%, helping to offset the softness exhibited in the US GoM. FCF was $37.1mm. Lastly, the $0.30/share (4.5% yield) annual dividend was suspended. See variance below.
FET has done a fabulous job during the downturn better positioning the company, through acquisitions, to profit from the continued increases in completion intensity in US land. That said, the lack of newbuild equipment on the Drilling & Subsea (D&S) side, as well as underwhelming incrementals, have acted as a drag on the stock, at least relative to what one would consider a very favorable 80% exposure to NAM land. In addition, we still see 12% downside risk to ’18 Cons EBITDA. So we maintain our PP rating with new YE18 PT of $14 (11.5x WR ’19 EBITDA) vs $15 previously.
Segment guidance implies modest upside to 4Q Consensus . 4Q guidance was provided on the conference call, which implies +/-$175mm of EBITDA (Cons/WR = $169mm/$165mm) and includes the following:
- 1 of 30
- next →