Industrial Alliance Securities Capital Markets Group

Transcription

1 Industrial Alliance Securities Capital Markets Group March 2016 Small Cap Conference Calgary Elias Foscolos Energy Services 1

2 Profile of Industrial Alliance Industrial Alliance Founded in th Largest life and health insurer in Canada Over $114 billion in assets under management & administration Over 5,000 employees and 25,000 agents Market capitalization of approximately $4 billion (IAG TSX) Industrial Alliance Securities A fully-integrated investment dealer with national presence Capital markets group comprising: 7 Equity Research - (Energy Services, Energy E&P, Non-Bank Financials, Consumer Products, Industrial Technology, REIT s, Software) Sales & Trading Fixed Income Investment Banking Retail Services Offering: An extensive full-service retail brokerage network with over 300 registered investment advisors across Canada with $7.5B in AUM 2 2

3 Energy Service Sector Discussion Points What is an Energy Service Stock? Performance Last Year / This Year Fundamentals - Oil and Gas Historical & Projected Rig Counts What I Look at in an Energy Service Company Coverage Universe Current Rating 3 3

4 What Kinds of Services are Provided? Most investors would assume energy service companies are drilling companies or drilling related this not true. Drillers (Precision (PD), Ensign (ESI) Trinidad (TDC) not covered not covered by ia) Drilling Related (CEU, SDY, MTL / PSD and HWO - sort of) Production Related (CEU, CCZ, CMG, EFX) Transport (MTL) Technology/Software (CCZ, PSD, CMG, MCB, PSI, PSD) Manufacturing (EFX, MCB, SDY) Rental (SDY) Many energy service companies have operations outside Canada US (CEU, CCZ, EFX, LSI, MCB, PSI, SDY) International (EFX, HWO, MCB) 4 4

5 What are Energy Services? Energy service companies support energy producers (ex. Suncor.. Imperial Oil.. to small producers) Currently there are approximately ~55 companies on TSX and TSXV that could be classified as energy service companies over 10M mkt Cap SOURCE: INDUSTRIAL ALLIANCE SECURITIES, DARK BLUE COVERED BY IAS 5 5

6 What are Distinguishing Features of Energy Service Companies? Make money (Earnings & EBITDA) Almost all companies under coverage have EBITDA, the majority have earnings. Rarely issue equity High inside ownership Pay dividends Virtually all TSX listed pay dividends (within IA s coverage universe 7 of 12 TSX stocks pay dividends) Technology Driven Many companies are world leaders in their field. Geographically diverse streams of revenue MCB ~95%, HWO ~ 85%, PSI ~75%, SCL ~73%, EFX ~70%, CEU ~70%, CMG ~67%, CCZ ~67%, LSI ~45% of revenue outside Canada 6 6

7 Declining C$ has Assisted Certain Companies C$/US$ EXCHANGE RATE SOURCE: INDUSTRIAL ALLIANCE SECURITIES 7 7

8 ia Energy Services Index How Have Stocks Performed? INDUSTRIAL ALLIANCE ENERGY SERVICE INDEX 31/12/12 3/28/16 1,800 1,600 1,400 1,200 1, Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 IAS Index TSX Energy Equipment Index SOURCE: INDUSTRIAL ALLIANCE SECURITIES 8 8

9 Stock Yields More Dividend Reductions to Come! INDUSTRIAL ALLIANCE ENERGY SERVICE INDEX AND YIELD SOURCE: INDUSTRIAL ALLIANCE SECURITIES 9 9

10 Looking Forward US Oil and Gas Production US Oil Production is Declining Overall Despite GOM Increase in Supply Oil is clearly driven by Global Supply / Demand fundamentals. The biggest contributor to oil oversupply is the US. US Production is correcting on an overall basis but the decline has been muted by long-lead Deepwater Gulf of Mexico production which was ordered years ago in an environment of stable and high prices and is now coming on stream. US Shale Oil Production Declining Rapidly US Gulf of Mexico (GOM Propped Up Supply in 2015) SOURCE: INDUSTRIAL ALLIANCE SECURITIES, US EIA, (B/E/P REFERS TO BAKKEN, EAGLE FORD AND PERMIAN BASINS 10 10

11 Looking Forward US Oil and Gas Production US Natural Gas / Supply and Demand Annual Dec Dec YoY Growth Growth Supply Dry Production % % Net Imports % % Total Supply % % Demand Transportation + Distribution % % Residential % % Commercial % % Industrial % % Power % % Total Demand % % Inventory (+ withdrawal) % % In a normal winter, increased power burn and additional LNG exports, the US could be either in balance or 5 bcf/d short. SOURCE: INDUSTRIAL ALLIANCE SECURITIES, US EIA 11 11

12 What Drives EBITDA ~ Rig Count Commodity Prices E&P Company Spending Rig Count Production Service Co s EBITDA Canadian rig counts have cyclicality, while US rig counts are more stable throughout the year. CANADIAN RIG COUNTS US RIG COUNTS SOURCE: INDUSTRIAL ALLIANCE SECURITIES, CAPP, BAKER HUGHES 12 12

13 The Four Key Investment Criteria PSI - Hold CMG Hold HWO Strong Buy PSD - Buy MCB - Hold MTL Buy SCL - Hold Low Debt Less Leverage to North American Drilling CCZ Spec Buy CMG Hold EFX Strong Buy HWO Strong Buy CMG Hold CEU Hold EFX Strong Buy MCB - Hold MTL Buy PSI Hold SCL - Hold Diversified (Geography/ Products) Active Buyback PSD - Buy HWO Strong Buy BOLD STOCKS MEET AT LEAST THREE CRITERIA, BOLD + ITALICS STOCKS TWO CRITERIA SOURCE: INDUSTRIAL ALLIANCE SECURITIES, CAPP, BAKER HUGHES 13 13

14 IA Coverage Universe INDUSTRIAL ALLIANCE ENERGY SERVICE COVERAGE UNIVERSE - RATINGS Price Mkt Cap Ent Value Yield Current Latest ate of Change in Target Return to 52 Week Return Company Ticker $/sh ($M) ($M) (%) Rating Full Note Target Rating $/sh Target High Low YTD 1 yr Drilling Related Canadian Energy Svs TSX:CEU , HOLD 14-Mar 14-Mar 16-Feb % % -41% Pason Systems TSX:PSI ,381 1, HOLD 29-Feb 23-Feb 5-May % % -18% Pulse Seismic TSX:PSD BUY 7-Mar 19-Jan > 1 yr % % -16% Strad Energy Services TSX:SDY BUY 25-Feb 25-Feb >1 yr % % -42% Non-North American High Arctic Energy Svcs. TSX:HWO STRONG BUY 15-Mar 22-Jan 10-Oct % % -11% McCoy Global TSX:MCB HOLD 10-Mar 8-Mar 8-Mar % % -52% Energy Software Computer Modelling Grp. TSX:CMG HOLD 23-Mar 23-Mar 23-Mar % % -18% Critical Controls Energy Svs TSX:CCZ SPEC BUY 28-Mar 19-Nov 18-Jan % % -41% Logistics/Manufacturing/Infrastructure Enerflex TSX:EFX , STRONG BUY 29-Feb 29-Feb 5-Nov % % -34% Lonestar West TSXV:LSI SPEC BUY 3-Dec 23-Feb 24-Sep % % -77% Mullen Grp. TSX:MTL ,303 1, BUY 16-Feb 16-Feb 23-Jul % % -29% ShawCor TSX:SCL ,808 2, HOLD 3-Mar 3-Mar 23-Feb % % -20% Simple Average % -8% -33% Average Weighted by Mkt Cap % -5% -25% S&P/TSX Energy Equipment and Services 710 1, % -38% ia Energy Services Index (monthly) 735 1, % -22% SOURCE: INDUSTRIAL ALLIANCE SECURITIES, PRICES AS OF MARCH 29,

15 IA Coverage Universe INDUSTRIAL ALLIANCE ENERGY SERVICE COVERAGE UNIVERSE - SEGMENTED Sector ia Coverage ia Buys Number of Companies Buys at a % of Coverage (Mkt Cap) 35% Equity Value ($B) Debt Value ($B) Debt/Ent Value (%) 36% 16% 30% ße Yield (%) 4.7% 3.6% 5.0% Return to Target (%) 1 Yr Return (%) - TSX S&P Energy Equipment n/a -38% 12% -25% 33% 1 Yr Return (%) - ia Index (Broader) -22% -25% SOURCE: INDUSTRIAL ALLIANCE SECURITIES 15 15

16 IA Coverage Universe INDUSTRIAL ALLIANCE ENERGY SERVICE COVERAGE UNIVERSE - METRICS Shares Mkt Enterprise Revenue ($M) Adj EBITDA ($M) Adj EPS Net Debt / EBITDA EV/EBITDA P/E P/Book Company Ticker Price (M) Cap ($M) Value ($M) 15 16E 17E 15 16E 17E 16E 17E Debt ($M) 15 E 16 E E 17 E 16 E 17 E Tang Total Drilling Related Canadian Energy Svs TSX:CEU , (0.08) x 5.5x 12.1x 17.9x 8.5x n/a 55x 3.5x 1.3x Pason Systems TSX:PSI ,381 1, (0.07) 0.39 (196) n/a n/a 14.4x 21.6x 10.9x n/a 42x 3.0x 2.8x Pulse Seismic TSX:PSD (0.08) 0.15 (3) n/a n/a 8.1x 9.2x 6.6x n/a 16x n/a 3.0x Strad Energy Services TSX:SDY (0.25) (0.05) x 1.4x 4.3x 5.7x 3.6x n/a n/a 0.5x 0.4x Non-North American High Arctic Energy Svcs. TSX:HWO (25) n/a n/a 2.6x 2.3x 2.3x 5.8x 5.8x 0.9x 0.9x McCoy Global TSX:MCB (12) 6 (0.40) 0.06 (27) n/a n/a 104.1x n/a 4.0x n/a 29x 0.6x 0.5x Energy Software Computer Modelling Grp.TSX:CMG (66) n/a n/a 18.6x 17.2x 14.5x 27x 22x 13.2x 13.2x Critical Controls En Svs TSX:CCZ (0.03) x 5.4x 27.3x 10.4x 4.8x n/a 17.4x 1.6x 0.4x Logistics/Manufacturing/Infrastructure Enerflex TSX:EFX ,226 1,629 1,176 1, x 2.5x 7.2x 7.2x 5.7x 18x 11x 2.2x 0.7x Lonestar West TSXV:LSI x 3.2x 6.5x 4.6x 4.3x 8.5x 5.1x 0.4x 0.3x Mullen TSX:MTL ,303 1,937 1,214 1,190 1, x 3.0x 9.1x 9.3x 6.6x 23x 11x 3.0x 1.6x ShawCor TSX:SCL ,808 2,043 1,811 1,535 1, x 1.4x 7.8x 12.5x 11.0x 48x 33x 4.1x 1.6x Total / Simple Average 7,276 8,627 6,291 5,278 6,065 1, ,109 1, x 3.2x 18.5x 10.7x 6.9x 22x 23x 3.0x 2.2x Mkt Cap Weighted Average 1.7x 1.2x 7.0x 10.8x 7.8x 48x 20x 3.0x 1.5x SOURCE: INDUSTRIAL ALLIANCE SECURITIES, PRICES AS OF MARCH 29,

17 The elephant, a symbol of our 120 years of strength and solidity 17 17