Opinions
Eric Nuttall
Secure Energy Services Inc.
SES-T
WATCH
Nov 22, 2023
Stock price when the opinion was issued
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Environmental services. Processes wastewater for oil and gas, mid-stream processing and storage. Very attractive EBITDA margins of 35-40%. Just bought biggest competitor. Stock's down, as Competition Bureau is forcing divestitures. Company is appealing this, good chance of winning. 9x earnings, share buybacks. Yield is 6.10%.
(Analysts’ price target is $8.73)For the quarter-ended, SES reported EPS of 12c missing estimates of 13c. Revenue (Excl oil purchase and resale) beat estimates of $333M coming in at $337M declining from $353M from the year prior. Adjusted EBITDA was $114M, declining from $119M but coming in well-ahead of forecasts of $102.15M. The comapny's CEO stated, "Strong second quarter results were driven by robust industry fundamentals, favorable weather conditions, and continued operational execution across our business units, resulting in double digit revenue growth on a same store sales basis." SES also raised its full-year adjusted EBITDA guidance and repurchased approximately 11% of outstanding shares in the quarter. The decline in revenue appears to be driven by wek industry conditions, but we think the results are fine outside of that. The adjusted EBITDA guidance raise is good to see and SES continues to be cheap at 13.5x forward earnings.
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SES is cheap and has a decent balance sheet. It pays a 2.63% dividend which has shown a bit of growth. At $3.6B, it is significantly larger than QST ever was. SES has decent cash flow and the stock is up 48% in the past year. 2025 earnings, however, are expected to decline, but this does seem reflected in the low valuation of 7X earnings. The business can be cyclical, but would consider it worth buying on valuation and potential.
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Waste remediation, metals recycling. Recurring revenue. Cashflow conversion rate to free cashflow extremely high in the 50% range. Growing by acquisition and organically. Allocating a lot of capital to buybacks, and Chairman recently added a big share. Industry is not too cyclical, not too hurt by tariffs. Valuation inexpensive. Yield is 2.91%.
(Analysts’ price target is $18.97)
SES holds a basket of waste services and recycling assets that has recently expanded to include metals recycling -- not exciting business, but stable. It trades at 6x earnings and supports a 52% ROE. Cash flow is strong and growing rapidly to allow for aggressive debt retirement and shares buyback. We recommend setting a stop-loss at $9, looking to achieve $17 -- upside potential of 25%. Yield 0%
(Analysts’ price target is $17.93)
He's been warming up to services in general. Well run. Too much uncertainty re sites it's been ordered to sell off. he's waiting for clarity on those sales proceeds. See his Top Picks.