HP slightly increased guidance for US Land revenue days (+5-6% q/q), International rev days (+9% q/q) and International Rig Margin/d ($8.5k/d), resulting in ~$4-5mm increase in implied EBITDA guidance to ~$115mm. Other noteworthy highlights include: 1) Harvey’s impact will be minimum with contracts continuing to earn rates despite not working, 2) 15 Super Spec upgrades since late June and 3) 97% Super Spec utilization, with Super Specs accounting for ~74% of total contracted US land rigs. While C3Q looks to be a little better than expected, we reiterate our UP rating on HP as the stock trades at 14.4x/10.0x WR ‘18/’19 EBITDA vs FY2 10-yr average of 6.6x.
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CLB announced the impact to their operations from Hurricane Harvey, negatively impacting 3Q topline by ~$7mm (down ~4% from prior guidance range) and EPS by $0.11 (-20% from prior EPS guidance), a little worse than we would have expected. But the impact likely includes more of a derivative effect than we had appreciated, not only directly impacting CLB’s Gulf Coast manufacturing facilities, which have all reopened now, but also a secondary impact from CLB’s clients that operate in the US Gulf Coast and GoM regions. Nonetheless, we see the impact of Hurricane Harvey as mainly transitory and not structurally impacting CLB’s businesses outside of 3Q. Maintain OP rating.
This morning (9/5), PTEN announced the acquisition of Multi-Shot LLC, (MS Energy Services), a leading private directional drilling services company, for ~$215mm (8.8mm shares and $75mm cash). On a normalized basis, we think the acquisition is modestly accretive to EPS, adding $0.08/shr (see Exhibit 1 for details). As for valuation, we estimate PTEN is paying ~6x ’19 EBITDA pre-synergies (none indicated but some likely), thus neutral to slightly accretive to PTEN’s current ’19 multiple of 6.2x (WR). The four largest land drillers will now offer directional drilling services, with more integration likely as drillers move to an integrated systems drilling (and possibly well construction) approach. Overall, nice deal, both strategically and valuation. PTEN remains at the top of our Peer Perform list.
FET is acquiring the remaining 52% stake in Global Tubing for $237mm. Solid transaction, both strategically and relative to accretion, where the deal is accretive on EPS and multiples. The transaction is expected to be >25% accretive to 2018 Consensus EPS, implying >$0.05/share accretion. Based on our ~$40mm EBITDA estimate for Global Tubing, FET is paying ~9x ’18 EBITDA, a significant discount to FET’s multiple, which is 16.7x our ’18 EBITDA. Post the deal, FET is trading at 14.7x/9.1x on our Pro Forma ’18/’19 EBITDA (see Exhibit 1). Following the closing of the acquisition, FET’s completion segment will account for almost 50% of consolidated revenues. We maintain our Peer Perform rating, but this was a solid acquisition.
Investor sentiment is bad, with the medium to longer term outlook for oil markets feeling worse today than it did back in 1Q16 even with oil prices well above ’16 lows. But we still think it is too early to call the bottom just yet as the pace of US rig declines (-2% in 5 weeks) must accelerate to the downside. ‘18 expectations, for both sellside and buyside, still need to come down more, in particular for US onshore stocks. Plus, the majority of our stocks are still trading well above historical multiples on our ’19 estimates, which, after a sloppy ’18, does bake in a 10%+ global recovery in activity with some healthy incrementals. So while most OFS stocks are trading near 52-week lows, with some even approaching ’16 lows, we still remain more cautious the space.
Along with ~1,300 HAL customers and partners from >30 countries, we spent two days this week at HAL’s Landmark Innovation Forum and Expo (LIFE). We may have underestimated HAL’s leverage to the digitalization of the oilfield, where the company started on its digital journey 5 years ago, and now has a strong strategic focus to be a digital technology leader in oil & gas. HAL is becoming more than just the “execution company.” But after attending this event one thing is clear – the oilfield is only in the very early innings of the digitalization age with significant opportunities to leverage digital technology to lower E&P’s cost per barrel. Change is required in today’s environment of cost constraints and shrinking margins. Thus, the industry must develop a clear digital strategy that will have a direct impact, both near and long term, on the global cost curves. Full event summary on pgs 2-3.
NBR announced they will be acquiring Tesco (TESO-NC) in an all-stock transaction valuing TESO at $144mm, after adjusting for $73mm of net cash. Based on our pre/post synergy ’19 EBITDA estimate of $10mm/$37mm for TESO (see exhibit 3), NBR is paying ~15x/4x vs NBR’s ’19 EV/EBITDA multiple of 6.2x, thus accretive to ‘19 multiples after giving credit for synergies. Also, the deal should be positive to both FCF and leverage ratios, while ~6c accretive to our mid-cycle EPS. And just as important, adding TESO’s tubular service business alongside NBR’s large global rig footprint will accelerate NDS growth (’20 NDS target EBITDA = $200-250mm) and advance NBR’s vision to reduce variation in well construction times. So while small in scale, we actually like the deal, but we maintain our PP rating given the significant balance sheet leverage.
Apart from near-term revisions risk to 2H17 Cons, we continue to favor BHGE given the company’s net cash position and fullstream approach across the entire energy value chain. BHGE has the capability to offer customers digitally enabled productivity solutions, positioning the company for meaningful share gains. As a result, we expect relative multiple expansion as BHGE emerges as a transformational leader during The Age of Optimization. On our ’18 EBITDA, BHGE trades at 11.4x vs HAL/SLB (both OP rated) at 11.4x/13.2x. That said, investors remain skeptical of the 2018/20 cost synergy targets of $600mm/$1,200mm. So for shares to experience relative multiple expansion due to stock outperformance, the company must flawlessly execute upon on these synergy targets, demonstrating solid margin expansion next yr even if topline growth is absent. Reiterate Outperform but lowering YE18 PT to $41 from $43 on reduced ’19 EBITDA and unchanged 10x EV/EBITDA multiple.
Slight beat was not enough to offset soft guidance, leading to significant underperformance today (-9.3% vs OSX –2.7%). While 2H guidance was light of expectations (implied mid-point suggests ~30% downside to 2H Cons EBITDA), our ’18 EBITDA estimate, which is still almost 40% below Cons, actually came up a bit (+6%) following the six rig GoM contract win. Nonetheless, we maintain both our YE18 PT of $7 (13.0x WR ’19 EBITDA) and UP rating as the offshore recovery likely proves elusive. Further, FI not only has significant risk to Cons but also trades at a lofty 14.3x our ’19 EBITDA, an unwarranted premium to both FI’s historical multiples and offshore equipment companies (aside from DRQ [UP]).
Excluding $5.4mm in loss on asset sales, FX gains, equity comp ($3.4mm), and other charges and credits, FI reported Adjusted EBITDA of $3.6mm, slightly above Consensus/WR of $3.2mm/$3.2mm. Revenue of $118mm (+6% q/q) beat Consensus/WR of $113mm/$111mm. International and Tubular sales revenue beat WR by 12% each (Int’l = $54mm vs WR = $48, Tubular = $16mm vs WR =$14mm). However, Adjsuted EBITDA was a mixed bag, with strong International ($9.0mm vs WR = $5.9mm) and Blackhawk ($3.0mm vs WR = $1.9mm) performance offset by weaker US Services (-$9.2mm vs WR = -$6.1mm) and Tubular Sales ($0.8mm vs WR = $1.6mm). Management attributed US weakness to GoM activity and lower absorption but noted 6 rig contracts award starting late ’17 / early ‘18. International and Blackhawk both benefited from lower costs and better mix. Management expects “to see continued positive trends in our international, US onshore and Blackhawk businesses.” See variance below.
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