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PSI.TO - Pason Systems Inc.


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Pason is a duopoly provider of electronic drilling data to rig contractors and E&P companies. The data is collected from sensors that are installed on the majority of drilling rigs. The company earns high EBITDA margins, has low capex requirements, no leverage, and has returned capital to shareholders ($500M over past 10 years). As oil demand returns post-pandemic, it's reasonable to assume oil prices and drilling activity will return to average levels seen in 2017 - 2019 (oil price already has). Using historical valuations from the same reference period implies Pason is worth ~C$20.00 per share. Could occur next year, could be the year after, but looks like double from C$10.00.

 

Simplistically:

 

2017 - 2019:

Avg WTI Price: $57/bbl

Avg N.A. Rig Count: ~1,100

Avg PSI Annual Revenue: $283M

Avg PSI Annual EBITDA: $125M

Avg PSI Annual FCF: $79M

Avg: EV/ EBITDA Multiple: 11.5x

 

Implied EV: $1.4B

Add: 2-3 years accumulated cash: $0.3B

Implied Market Cap: $1.7B

Implied Share Price: C$20.00

 

WTI Price Today: ~$65.00

N.A. Rig Count Today: ~500

 

Not as much torque to the oil and gas recovery as a levered E&P, but this much higher quality business so I think the risk-reward is quite attractive. Thoughts?

 

 

 

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Pason is a duopoly provider of electronic drilling data to rig contractors and E&P companies. The data is collected from sensors that are installed on the majority of drilling rigs. The company earns high EBITDA margins, has low capex requirements, no leverage, and has returned capital to shareholders ($500M over past 10 years). As oil demand returns post-pandemic, it's reasonable to assume oil prices and drilling activity will return to average levels seen in 2017 - 2019 (oil price already has). Using historical valuations from the same reference period implies Pason is worth ~C$20.00 per share. Could occur next year, could be the year after, but looks like double from C$10.00.

 

Simplistically:

 

2017 - 2019:

Avg WTI Price: $57/bbl

Avg N.A. Rig Count: ~1,100

Avg PSI Annual Revenue: $283M

Avg PSI Annual EBITDA: $125M

Avg PSI Annual FCF: $79M

Avg: EV/ EBITDA Multiple: 11.5x

 

Implied EV: $1.4B

Add: 2-3 years accumulated cash: $0.3B

Implied Market Cap: $1.7B

Implied Share Price: C$20.00

 

WTI Price Today: ~$65.00

N.A. Rig Count Today: ~500

 

Not as much torque to the oil and gas recovery as a levered E&P, but this much higher quality business so I think the risk-reward is quite attractive. Thoughts?

 

I agree, good company with sticky products. It was a screaming bargain last year.

 

They are giving a little on price lately because their customers are hurting, but they are still gaining market share.  My 2 cents on valuation.... they made $75 MM US FCF on average from 2013-2019, which takes in a full cycle. I also estimate they'll make $75MM when rig counts get back to 700, as mgmt expects by year-end.

 

I'm thinking 15 X 75 = $1.12 B US = $13  ( PSYTF) or $16 CDN ( PSI.TO).

 

But 15X might be high.

 

(I've stopped giving market cap credit for net cash. The market doesn't!)

 

Thanks for posting.

 

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