I agree with your analysis of QST. Good Risk Reward at certain levels. If I could add a couple points...
1) You reference the rental assets on the balance sheet. Prior to COVID, this new rental strategy fully utilized this fleet and drove significant EBIT as shown in your chart because margins were better. Stock was north of $5. Oil Co's are always challenged to utilize OpEx for Drilling, Infrastructure De-bottlenecking (in the case of refineries), etc. Spending scarce budget for something that doesn't drive top line or improve middle lines rarely get approved. Turn it to a rental/lease makes it OpEx, which doesn't have as much scrutiny. That vast majority of that fleet was idled 2-3 years ago, but still being depreciated. Getting those assets back into the rental revenue will drive even higher margins on almost fully depreciated assets.
2). Read the Management remarks in the Q3 results. They say that post a number of industry conferences focused on solving O&G ESG challenges, QST has recieved numerous "Request for Proposals" from both Domestic (Canada) and International (likely US) OilCo's. RFP's are a very specific 1st step of a sale. OilCo's do not kick the tires with RFP's, they do it with approved budget and a plan with a project team to implement (one way or another). The pending 2024 ESG legislation is driving those actions. Since that time, two separate $1M sales have been made to the Canadian majors. These majors will requires tens to hundreds of millions in QST technology if it is proven out. Subsidies given be Canadian Gov and now with new US IRA legislation intent asset purchases (not rental) so we may see more sales in the near future.
getting a good balance between rental and sales is what I am looking for in 2023
If the rental fleet utilization can tick up the profitability will ramp dramatically higher. I do think there is risk that fracking boom this cycle is far lower than the cycle from 2011-2014, however customer adoption of rental and ESG focused assets may be higher so it could end up being a wash.
If they can resolve the Mexico project and do some dedicated IR I feel the company could fetch a decent multiple.
I agree with your analysis of QST. Good Risk Reward at certain levels. If I could add a couple points...
1) You reference the rental assets on the balance sheet. Prior to COVID, this new rental strategy fully utilized this fleet and drove significant EBIT as shown in your chart because margins were better. Stock was north of $5. Oil Co's are always challenged to utilize OpEx for Drilling, Infrastructure De-bottlenecking (in the case of refineries), etc. Spending scarce budget for something that doesn't drive top line or improve middle lines rarely get approved. Turn it to a rental/lease makes it OpEx, which doesn't have as much scrutiny. That vast majority of that fleet was idled 2-3 years ago, but still being depreciated. Getting those assets back into the rental revenue will drive even higher margins on almost fully depreciated assets.
2). Read the Management remarks in the Q3 results. They say that post a number of industry conferences focused on solving O&G ESG challenges, QST has recieved numerous "Request for Proposals" from both Domestic (Canada) and International (likely US) OilCo's. RFP's are a very specific 1st step of a sale. OilCo's do not kick the tires with RFP's, they do it with approved budget and a plan with a project team to implement (one way or another). The pending 2024 ESG legislation is driving those actions. Since that time, two separate $1M sales have been made to the Canadian majors. These majors will requires tens to hundreds of millions in QST technology if it is proven out. Subsidies given be Canadian Gov and now with new US IRA legislation intent asset purchases (not rental) so we may see more sales in the near future.
getting a good balance between rental and sales is what I am looking for in 2023
Thanks for the added points BLE. I agree.
If the rental fleet utilization can tick up the profitability will ramp dramatically higher. I do think there is risk that fracking boom this cycle is far lower than the cycle from 2011-2014, however customer adoption of rental and ESG focused assets may be higher so it could end up being a wash.
If they can resolve the Mexico project and do some dedicated IR I feel the company could fetch a decent multiple.
Looking forward to 2023.