Shares of Civeo are worth at least 2x where they are currently trading without any heroic assumptions.
I read something on Twitter that said the best ideas were concise and easy to understand ideas. So I’m going to keep this short and sweet.
Civeo (NYSE: CVEO) is a provider of remote workforce accommodations in Canada and Australia, with approximately 50/50 EBITDA split over the medium term. You may know them as mancamps. The Canadian operations primarily serve the oil sands and the Aussie business primarily serves metallurgical coal and iron ore mines. There is very little greenfield or expansionary capex being spent in these markets so most of the activity in these areas are maintenance / turnaround related. COVID and the crash in oil prices kind of threw the oil sands for a loop, but occupancy is picking up and should continue to recover as operations in Canada return to normal in 2021-2022, supported by much higher oil prices and return to normal staffing levels as COVID concerns go away.
Management expects EBITDA for 2021 (excluding some beneficial one-time items) to be around $90-$100mm, so let’s just say $95mm for 2021 (management is pretty consevative with guidance, for what it’s worth). Take off $20mm for net expected capex, $15mm of interest expense, and minimal cash taxes and they should be able to generate approximately $60mm of free cash flow in 2021 (they guided to $50-$65mm). The business results, in general, since they are maintenance oriented, seem sustainable to me over the medium term. I model $110mm of EBITDA in 2021 as occupancy in Canada continues to recover to pre-COVID levels but that estimate could be conservative. The company has been squarely focusd on reducing debt over the past year and a half and they have commented publicly that they will consider buybacks in the seond half. I think the shares could double over the next year as a base case. (see analysis below)
This stock is just an illiquid small cap that no one cares about. If you’re interested, call up the CEO, Bradley Dodson. He’s impressive and he loves to talk to new investors.
I do not hold a position with the issuer such as employment, directorship, or consultancy. I and/or others I advise hold a material investment in the issuer's securities.
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