TOT : TSX : $21.71
Total Energy Services provides surface rental equipment,
contract drilling and natural gas compression and
processing equipment in western Canada. The company
has the largest rental fleet of its type in the WCSB and is
the second largest provider of natural gas compression
packages in Canada
Energy – Oilfield Services
Q1/14 IN LINE, CAPEX BUMP REFLECTS IMPROVING RENTAL
Total recently reported in line Q1/14 operating results and increased its
2014 capital program (refer to our First Link note published on May 12).
We believe Total’s first quarter results and commentary confirm our
thesis that the company’s Rental & Transportation Services (RTS)
segment is gaining positive momentum. We are making modest estimate
adjustments, increasing our target price to C$27.00 and reiterating our
Management believes RTS pricing has bottomed following a
competitive Q1/14. Total’s increased 2014 RTS capex is highly
focused on larger project activity, which should lever the company’s
strong market position and capital resources.
Management reported that the sequential decline in Q1/14 backlog
in Compression & Process Services (CPS) was largely seasonal as
this unit’s backlog has subsequently climbed.
Despite Total’s increased 2014 capital program, we expect Q1/14
net debt to fall through 2015. This leaves Total well capitalized to
take advantage of improving fundamentals.
Valuation and recommendation
We are making modest estimate revisions, which takes our EPS outlook
to $1.75 from $1.70 this year while leaving our 2015 view unchanged at
$2.60. Concurrently, we are raising our target price to C$27.00 (from
C$26.00) based on a 5.5x multiple applied to our 2015 estimates. We
continue to believe that consensus expectations meaningfully
underestimate the earnings potential of Total’s RTS segment as WCSB
completion activity improves, and are reiterating our BUY