STEP Energy Services Quick Update - $STEP.to

Quick update after Q1 2024

*Disclosure: I own shares in STEP. I am not a professional. Please do your own due diligence.

Price: $4.26 CAD

MC: 318 million CAD

EV: 442 million CAD

1 year performance:

STEP reported Wednesday after the close and held a call Thursday morning. Results were well ahead of my expectations and the stock was up over 6% on the day.

Quarter Recap

• Revenue was 320 million vs 263 million last year.

  • Up 22% yoy.

• EBITDA was 79.5 million vs 45 million last year.

  • up 62% yoy.

• Canadian market was strong in both Fracturing and Coil Tubing.

  • Revenue was 241.1 million vs 174.4 million last year.

  • EBITDA was 72.1 million vs 44.8 million last year.

• US was sluggish driven by lower fracturing revenue.

  • They noted that they expect the US fracturing market to remain under pressure for the next quarter.

  • US revenue was 79.1 million vs 88.9 million last year.

  • EBITDA was 12.8 million vs 4.8 million last year.

    • The improvement was driven by more efficient scheduling of crews and cost management.

Call Notes

• Outlook for Canada was stable from here.

• They noted competitive pressures in the US. They were able to maintain margins better than I expected given activity levels.

• They continue to focus on paying off debt and being prudent when investing in equipment.

Valuation

I have them at under 2.5x EV/EBITDA (both ttm and for 2024). I think with STEP you can get some valuation expansion as they continue to de-lever, some growth in EBITDA in 2025/26 and some eventual return of capital.

Closing Thoughts

The tone on the Q4 2023 was pretty muted given these results. This quarter wasn’t much different. They see pockets of strength (or at least stability) and parts that are facing headwinds.

This quarter demonstrates why I own a basket of OFS companies. I’m not smart enough to know how each business will respond to the environment when it isn’t growing gangbusters. And if I ever figure that out, I am never going to predict how the market would respond.

Thanks for reading.

Dean

* long STEP.to