The oil services stocks on our list are undervalued compared to peers on a forward EV/EBITDA basis
SmallCapPower | May 15, 2018: Oil prices have continued rising since a decline in February, with prices gaining US$9.44/bbl over the past three months, driven by concerns of Iranian sanctions and high compliance rates with OPEC/Russia supply cuts that began in January 2017. Oil companies in Canada have been hampered by relatively high output costs but could ramp up production should prices continue to rise. The oil services stocks on our list today have the capacity to provide their clients further services as needed. They have an average forward EV/EBITDA multiple of 3.8x, lower than their peers average multiple of 8.5x.
Step Energy Services Ltd. (TSX:STEP) – $12.12
Oil Related Services and Equipment
Step Energy Services is an oilfield services company operating in Alberta and Texas. The Company’s coiled tubing segment operates 22 deep-capacity coil spreads, with integrated monitoring services. Its fracturing solutions segment currently deploys 209,000 HP, responsible for two-thirds of the Company’s revenue. On April 2, the Company completed the acquisition of Tucker Energy Services, an American energy services company with 192,500 HP, for US$275M.
- Market Cap: $805.8 Million
- Enterprise Value to EBITDA FY2018: 6.6x
- Forward Enterprise Value to EBITDA FY2019: 3.7x
- YTD Total Return: 18.1%
High Arctic Energy Services Inc. (TSX:HWO) – $3.96
Oil Related Services and Equipment
High Arctic Energy Services is an oil and gas services company operating in Canada and Papua New Guinea. The Company provides drilling, production, equipment rental, and nitrogen services. HWO greatly expanded its Canadian operations in 2016 through the acquisition of Tervita’s Production Services division for $42.8M; the Canadian division is now responsible for ~50% of revenue.
- Market Cap: $210.4 Million
- Enterprise Value to EBITDA FY2018: 3.0x
- Forward Enterprise Value to EBITDA FY2019: 4.2x
- YTD Total Return: 3.0%
Strad Energy Services Ltd. (TSX:SDY) – $1.65
Oil Related Services and Equipment
Strad Energy Services is an oil and gas services company operating at 19 locations in Canada and 6 in the U.S. The Company provides rental equipment and matting solutions, with a 4,200-vehicle surface equipment fleet and 67,000-vehicle matting fleet, both with a ~30% utilization rate. Strad also operates pipeline, power transmission, mining and construction services. SDY aims to further expand its U.S. operations, which had its revenue increase 69% Y/Y.
- Market Cap: $94.6 Million
- Enterprise Value to EBITDA FY2018: 5.1x
- Forward Enterprise Value to EBITDA FY2019: 3.5x
- YTD Total Return: -1.8%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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