*Disclosure: I own shares in STEP.to. I am not a professional. Please do your own due diligence.
Price: $3.75 CAD
MC: 279 million CAD (fully diluted)
EV: approx. 378 million CAD
1 year performance: +8%
STEP reported Monday after the close and held a call yesterday. Results were well below my expectations. The stock was down 13% yesterday. Ooof.
Quarter Recap
Revenue or 195 million vs 251 million last year.
EBITDA of 18.4 million vs 48.6 million last year.
This works out to a margin or 9% vs 19%.
There was some work deferred from Q4 to Q1.
They are now well under 100 million in net debt now.
They spent 105 million in capex in 2023.
They accelerated some spend to take advantage of early payment and possession.
Call Notes
The deferred work was about 10-35 million in revenue.
Capital budget of $120 million for 2024. Around 50/50 growth vs maintenance.
Investing to make more of their fleet dual fuel capable. They want 90% of their fleet to be dual fuel capable by end of 2025.
Sounds like Canada has been stable and US has been weak. I took away from the call that they expect this to continue.
They mentioned that they would idle equipment in Canada if returns are not adequate.
H1 2024 has reasonable visibility. Low nat gas price was a point of concern for activity levels for the back half of the year.
There was mention of the drought here in Canada and how it may impact operations.
Sounded like they would continue to utilize the NCB to buy back stock.
They mentioned replacement cost of their assets at $18-20 per share.
Closing Thoughts
Can’t win them all. Some of the OFS cos I own had an easier time maintaining margins during this lower activity. This is why I buy a basket. I am at best a generalist here.
Starting from here, the stock has some churn to work through in my opinion. I don’t know where it will trade, but I suspect many will jump ship after the quarter. The quarter was weak but they also didn’t do much to reassure the street, which means STEP is in the penalty box. We will see what expectations look like from here as the market digests the quarter. After Q3, I was thinking that 2024 could see them eclipse 2022 EBITDA. I no longer think that is the case . I suspect 130-150 million in EBITDA is attainable for 2024 (2023 clocked in at 163 million) which would put them a bit under 3x EV/EBITDA at the expense end of the range. Having said all that, the market is forward looking and will likely out higher earnings in H2 2024 or 2025 before the financials demonstrate it.
I think STEP is still a deleveraging play to some degree, with a capital allocation wild card if activity remains stable. I continue to hold, but I (as always) will swap out names if I feel the risk/reward is better elsewhere.
Thanks for reading.
Dean
* long STEP.to