Total Energy Services Eyes Further U.S. Expansion

A Quick Take On Total Energy Services

Total Energy Services (TSX:TOT:CA) (OTCPK:TOTZF) reported its Q4 2022 financial results on March 10, 2023, growing revenue by 457% (in CAD) year-over-year.

The firm provides various oilfield drilling, storage and related services in Canada, the U.S. and overseas.

The Board of Directors has recently raised the dividend by 33% and management’s strongly positive comments about U.S. demand opportunities leads me to be Bullish on TOT:CA stock at around $8.10 per share.

Total Energy Overview

Calgary, Canada-based Total Energy Services was founded in 1996 to provide a growing number of oilfield services and products to exploration & production companies in North America and internationally.

The firm is headed by founder, president and CEO Daniel Halyk, who had previously co-founded Trident Capital Partners, an investor in the energy and real estate industries.

The company’s primary offerings include the following:

• Compression and process servicing - 44% of revenue

• Contract drilling services - 33%

• Well servicing - 14%

• Rentals and transportation - 9%

Total Energy’s Market & Competition

According to a 2021 market research report by Fortune Business Insights, the global hydraulic fracturing market (as a proxy for overall oilfield servicing) was an estimated $11.7 billion in 2020 and is forecast to reach $28.9 billion by 2028.

This represents a forecast CAGR of 9.5% from 2021 to 2028.

The main drivers for this expected growth are the continued growth of natural gas and oil products for energy and other uses, along with improved technological aspects of the industry.

Also, the chart below shows the historical and projected future growth trajectory of the U.S. hydraulic fracturing market:

Major competitive or other industry participants include the following:

• Halliburton (HAL)

• Schlumberger (SLB)

• Baker Hughes (BKR)

• ProFrac Holding (ACDC)

• Weatherford (WFRD)

• Others

Total Energy’s Recent Financial Results

• Total revenue by quarter has risen per the following chart:

• Gross profit margin by quarter has trended higher in recent quarters:

• Selling, G&A expenses as a percentage of total revenue by quarter have moved lower more recently:

• Operating income by quarter has increased materially in recent reporting periods:

• Earnings per share (Diluted) have also grown substantially recently:

(All data in the above charts is GAAP - CAD)

In the past 12 months, TOT:CA stock price has dropped 2.4% vs. that of the Oilfield Services ETF's (IEZ) rise of 2.1%, as the chart indicates below:

As to its Q4 2022 financial results, total revenue rose 46.7% year-over-year and gross profit margin increased by 1.2 percentage points.

Revenue increased partly due to growth in North American operating days and revenue per day.

SG&A expenses as a percentage of total revenue continued their downward trend while operating income remained strongly positive.

Earnings per share were substantially higher year-over-year despite inflationary pressures.

For the balance sheet, the firm ended the quarter with cash and equivalents of CAD34.1 million and total debt of CAD120.0 million.

Over the trailing twelve months, free cash flow was CAD86.7 million, of which capital expenditures accounted for CAD56.7 million. The company paid only CAD1.1 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For Total Energy

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

Future Prospects For Total Energy

In its last earnings call (Source - Seeking Alpha), covering Q4 2022’s results, management highlighted the growth in its business across all segments, due partly to previous investments in upgrading its rigs as markets increased demand.

Leadership noted the improving industry dynamics of increased demand yet reduced capacity due to contraction and consolidation.

As a result, the company appears well positioned to capitalize on improving conditions, especially in the United States, which surpassed its Canadian region revenue for the first time in the company's history.

Subsequent to the quarter’s end, the Board of Directors approved a 33% increase in the dividend to CAD0.08 per share, resulting in approximately a 2.8% forward annual dividend yield.

Looking ahead, apart from the dividend increase, management’s primary use of excess cash in 2023 will be to reduce debt.

The primary risk to the company’s outlook is the unpredictable nature of oil & gas pricing, which can affect rig demand in the short term.

However, as larger entities ramp up production in the continental U.S., Total’s exposure to such fluctuations may diminish.

Management sees a variety of U.S. markets where supply has not met recent demand and hopes to reposition equipment and resources to take advantage of that imbalance.

While the leadership hasn’t provided specific forward guidance, raising the dividend by 33% combined with management’s comments about U.S. demand opportunities leads me to be Bullish on TOT:CA at around $8.10 per share.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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