Description

We think PUMP is cheap given the ramp in equipment over the last 5 years. CFO = CAPEX and trades at 1.16x tangible book. Going forward the company is moving into better FCF dynamics with roughly an 19% FCF/EV. Maintenance CAPEX is roughly $250 million +/-. Revenue is situated to grow at 30% for ’23 vs. ’22.

Re; Oil Risk: Even when Oil plunged in 2020….PUMP generated + free cash flow. The company holds little debt and sell-side has $220+ million in free cash flow going forward.

I have seen about somewhere between 50-67% of oil comes from fracking now.

We believe there are 58 billion barrels of oil in the Permian basin and roughly half of this will be pumped out of the ground over the next 25 years.  

Pump has largely blue-chip customers -> PXD owns 18% of the equity and has a 10-year contract with PUMP, board member Vice Chairman of Oxy also sits on PUMP’s board.

PUMP has spent $1.4 billion on their pumping fleet of 1.6 million horsepower.

Sell-side has Pump has $1.7 billion in revenue, $500 million in EBITDA, and $385 in EBIT with an EV of $1 billion.

CapIQ sell side estimates below: 

PUMP should generate roughly +25% ROE for ’23 with $2 in EPS on $8 TBK.

Top line growth from an acquisition should be +30% revenue growth from $1.3 to $1.7 billion

The CEO is a former walk-on football player at Baylor and worked in the field for 10 years before becoming CEO. He seems like a competitor and seems to have a good board and business strategy to execute improving free cash flow dynamics and continued growth. Sam the CEO is only 35 years old and has worked for the company since getting his MBA back in 2011. He has served in all areas of the company Technical Specialist, Technical Operations Manager, Corp Dev, IR, President, Chief Strategy Officer, and now CEO.

We believe there should be some kind of public-private market arbitrage between buying cheaper in the private market and getting some kind of liquidity premium but at the current valuation, this is NOT the case.

We belileve high level a)solid business strategy +  b) strong board + c) good CEO +  d) good growth opportunities with higher FCF conversion and e) stable high quality customer base.

Durastim pumps cost roughly $60 million each and are remotely operated from a remote data room. These pumps save money for the drilling companies as fewer wells need to be drilled and these pumps can work laterally up to 3-4 miles.

https://www.propetroservices.com/about

ProPetro is a primary provider of hydraulic fracturing services to E&P companies in North America. Our fleet has been designed to handle the highest-intensity, most complex hydraulic fracturing jobs, and is largely standardized across units to facilitate efficient maintenance and repair and reduce equipment downtime.

ProPetro’s Cementing Division consists of 25 total units. 18 units are located in Midland, Texas to service the Permian Basin and the other 7 located in Vernal, Utah, ready to service the Rocky Mountains. Our entire fleet is equipped with state of the art fluid density monitoring systems as well as the ability to record and chart densities, volumes, and pressures. These advances make ProPetro’s Cementing fleet capable and ready to service our customer’s cementing needs.

Silvertip Completion Services Operating, LLC, is a Midland, Texas-based oilfield services company that owns and operates 23 wireline units and a best-in-class pumpdown fleet. Silvertip has deep data collection capabilities, a culture of data-driven decision making and an established track record of safety, providing operators with efficient wireline and pumpdown services including logging, perforating and pressure control.

https://d1io3yog0oux5.cloudfront.net/_0d948578b26cb2ee9b7dc0615613420f/propetroservices/db/284/1985/pdf/2022-11-01+PUMP+3Q22+Investor+Presentation+11-01-22+0957hrs.pdf

 DISCLAIMER: This does not constitute a recommendation to buy or sell this stock. We own shares of the company, and we may buy shares or sell shares at any time.

Risks

Oil falls under $55 and utilization falls off this business will be hurt, however low leverage and in '20 company still generated + FCF

PXD owns 18% of the equity and is currently 50% of revenue but with a long term contract in place

Catalyst

Above average business +25% ROE w/ a net cash position and at below average valuation +20% FCF yield and 1.15x TBK