Enteq Upstream - Expansion strategy drives strong interim results
Enteq Upstream PLC (LON:NTQ) is a leading technology provider to the global oil & gas directional drilling market. The company designs and produces high-end robust measurement-while-drilling (MWD) systems and associated components. We gave some details on the technologies and demand drivers in our initiation report - "Knowing the drill, 25 September 2019".
The company has released its interim results for the period to 30 September 2019, with revenues increasing 58% and adjusted underlying earnings (EBITDA ) up 143% year-on-year. These figures are above the guidance issued in September - "Revenue more than 50% higher... adjusted EBITDA doubling".
We note that these results have been achieved against some weakness in the core North American end market, where rig count fell from 1,030 to 850 by the period end. Enteq's international (non-North American) revenues grew strongly to make up 36% of the group's total (versus 6% a year ago) driven by major new customer wins in China. This reflects the company's strategic initiative to increase international revenues, and we expect these to continue growing.
Also contributing to revenue growth, rental equipment revenues increased to US$2.6mlm (six months to Sep 2018: US$1.6mln). We don't expect further incremental growth from this revenue stream in the next 12 months, as weak US rig count presents a headwind.
The company has reiterated continued progress for its new technology investments, which are at various stages of maturity. We expect these to contribute strongly to revenue growth in the period 2020-2022, including the Rotary Steerable System being developed under an agreement with Shell. Enteq reported a net cash balance of US$10.7mln at 30 September, providing capacity for additional technology investments as and when opportunities arise.
Strong interim results
The first-half (H1) results were ahead of our expectations, but we are leaving our full-year (FY) forecast unchanged as we expect some continued softness in the North American market. Our forecast postulates 12% growth in revenues for the year, and 45% growth in adjusted EBITDA. We expect further strong growth in revenue and profit in FY 2021 and 2022 driven by international expansion and new technologies; we present an overview on p2. The share price has increased by 60% year-to-date; however, the valuation still represents an enterprise value/EBITDA ratio of only 2.6x for FY March 2022 by our forecasts, which leaves significant upside potential in our view.
Outlook, share price performance
Year end Mar 31 · Current · 2020 · 2021 · 2022
Revenue (US$M) · 10.20 · 11.46 · 14.46 · 17.50
EBITDA (US$M) · 2.45 · 3.56 · 3.75 · 5.23
EPS ( US cents) · (0.2) · 0.2 · 2.5 · 4.7
Net Cash · 11.9 · 10.5 · 11.0 · 12.0
Enteq has been growing strongly against a weak domestic market
Enteq revenues versus North American rig count
Source: Baker Hughes rig count, Enteq revenue figures