Step Energy Services Quick Update - $STEP.to
Quick update after Q3 2023
Price: $4.45 CAD
MC: 335 mil
EV: 434 mil
1 year performance:
STEP reported Wednesday after the close and held a call yesterday. Results were ahead of my expectations given the activity levels in the US and the stock sold was flat on a day when the market was up.
They also announced a new independent board member as one retired.
Quarter Recap
Revenue was 255 mil vs 245 mil last year
Adj EBITDA was 52.3 mil vs 58 mil last year
They focused on debt repayment and have hit their target of having less than 100 mil in debt by end of year
Expecting an increase 2024 based on current trends
The outlook was reasonable
Canada looks strong
US looks stable
Call Notes
They are going to move equipment to the US
The equipment is form the GASFRAC acquisition is cold weather assets so no need to any refurbishment for the move
The cost to mobilize is pretty immaterial
Not worried about sand supply at this point
As they pay down debt further they haven’t committed to a dividend or NCIB at this point.
Canada looks to be strong in 2024 with the completion of the Trans Mountain and Coastal Gas Link pipelines
Closing Thoughts
I own STEP as part of my OFS basket. They are executing well in the current environment. The capital discipline across the industry is supporting margins despite lower activity levels yoy.
It looks like Q4 2023 will be lighter than I was originally expecting, but 2024 looks to be another strong year.
The balance sheet is getting cleaned up ahead of schedule. I’m operating under the assumption that growth in earnings and deleveraging will lead to a higher share price. I am not banking on much valuation re-rating. STEP is trading around 2.4x my current EV/EBITDA estimates and about 2.1x EV/2024 EBITDA. I’ll be watching the rig count closely (as usual) as I’m assuming that any incremental production from the US will need to be driven by drilling.
Thanks for reading.
Dean
* long