Civeo Corp

Ticker
$CVEO
Industry
Energy
Type
Delever
Rating
Covered
Category
General
Target Price
$40.00
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Since 1/1/2020, CVEO has seen 50-60% share price gain (as of March 2022) BUT enterprise value is actually DOWN... Company has repaid a massive amount of debt over the past 2 years and the stock price is only reflecting part of the debt paydown (i.e. no multiple expansion).

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Notes

Comparable multiples for other lodge operators — note that each of these businesses have varying business models; Civeo focuses on fixed lodges (camps) while others like Black Diamond are investing in mobile lodging.
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Revenue disaggregation — 2019-2021
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Debt paydown — Civeo has repaid an enormous amount of debt since 2014; this has been the primary area of capital allocation from 2015-2022 (absent a decent sized acquisition in 2018)
  • Down from $775m to $175m (2014-1H22) and net leverage close to 1x EBITDA
Buybacks — Small amounts of buybacks starting in 2021-2022 now that leverage is under control — this is likely the next phase of capital allocation
  • August 2022 — “…repurchase approximately 375 thousand Civeo common shares, representing 2.6% of the fully-diluted common shares outstanding, from a shareholder, for approximately $10.7 million.”

Financials & Valuation

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Capitalization (2Q22) — CVEO stock is trading around $32/share. There are just shy of 14m shares outstanding for a ~$450m market cap. Net debt is roughly $150m for a $600m EV. Midpoint EBITDA guide is $100m so 6x EV/EBITDA. FCF is expected to be $56-71m or a 14% FCF yield.

Resources

August 2022 — Deleverage complete; now time for buybacks
  • Earnings highlights:
    • Reported second quarter revenues of $185.0 million and net income of $9.1 million;
    • Reduced net leverage ratio to 1.18x as of June 30, 2022 from 1.40x as of March 31, 2022;
    • Delivered second quarter Adjusted EBITDA of $37.1 million;
    • Awarded a 12-year contract renewal at Wapasu Lodge in the Canadian oil sands including approximately C$500 million of guaranteed take-or-pay revenues; and
    • Today announced a 5-year integrated services contract with a new customer in South Australia with expected revenues of A$120 million.

CVEO stock is trading around $32/share. There are just shy of 14m shares outstanding for a ~$450m market cap. Net debt is roughly $150m for a $600m EV. Midpoint EBITDA guide is $100m so 6x EV/EBITDA. FCF is expected to be $56-71m or a 14% FCF yield.

To support some new contracts, capex is jumping to $24-29m in 2022 vs. $10m in 2020 and $15.6m in 2021. It sounds as though +/- $25m will be the new norm for capex going forward as rooms need refurbishing. We’ll see how this impacts cash flow in the future. Ideally, EBITDA growth should more than offset the added capital needed.

Important to remember the preferred shares mandatorily convert to common in April 2023 at a price of $39.60/share. This will add ~2.5m shares to the share count.

I’m using an EV/EBITDA multiple of 7x to value the company. This is a slight premium to the 3yr average at 6.4x but slightly below the 5yr average of 7.3x. On $100m EBITDA, $150m net debt, and a 13.5m share count = $40 per share price target.

July 2022 — Tweet thread
May 2021 — VDL: initiation report
May 2021 — VDL tweet thread