Oil & Gas Services Company Upgraded to Buy

Source: Streetwise Reports 01/30/2020

The reasons behind the changed rating and expectations for the firm’s Q4/19 are presented in an iA Securities report.

In a Jan. 27 research note, analyst Elias Foscolos reported that iA Securities upgraded its rating on Pason Systems Inc. (PSI:TSX) to Buy from Hold “as upside has improved and U.S. drilling likely bottomed.”

Foscolos previewed Q4/19 for the Calgary-based the oil and gas services company that provides “specialized data management systems for drilling rigs.”

He wrote that iA Securities expects Pason Systems’ Q4/19 revenue to be down 11% quarter over quarter (QOQ) due to an 11% drop in rig counts to an average of 798 in the U.S. during that period. However, stability in Canada and a projected increase internationally should somewhat offset the lower revenue. The $30 million of EBITDA that iA Securities projects for Pason in Q4/19 is in line with consensus’ estimate.

Foscolos noted that drilling in the U.S. has reached a nadir, and independent companies are feeling the brunt of it more than the majors. “As U.S. net oil production changes approach zero, a level of drilling will be reached where majors are at least drilling enough to replace aging production,” he added.

The analyst highlighted that Pason warrants a higher valuation than its peers due to its “premium fundamentals,” which include about $150 million of net cash, a capex-light business, robust cash flow and a mid-double digit return on equity.

Looking forward, iA Securities projected lowered EBITDA in Q4/19 and 2020, respectively, of 6% QOQ and 5% year over year. “Despite these headwinds, we project ~$20M in quarterly run-rate
funds flow from operations (FFO), and the Company has a clean balance sheet and other favorable fundamentals relative to peers,” the analyst wrote.

Accordingly, the financial firm maintained its CA$16.15 per share target price on Pason Systems, whose stock is currently trading at around CA$13.19 per share.

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Disclosures from iA Securities, Pason Systems Inc., Quarterly Preview, January 27, 2020

Conflicts of Interest: The research analyst and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of iA Securities, which may include the profitability of investment banking and related services. In the normal course of its business, iA Securities may provide financial advisory services for the issuers mentioned in this report. iA Securities may buy from or sell to customers the securities of issuers mentioned in this report on a principal basis.

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( Companies Mentioned: PSI:TSX,
)

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