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Calmena Energy (CEZ.TO): Is It the Most Undervalued Company of Its Sector?

August 14, 2012 | About:
Nathan Kirykos

Value Digger

14 followers
Calmena Energy (CEZ.TO) is a diversified energy services company that provides well construction services to its customers operating in Canada, the U.S., Latin America and the Middle East and North Africa. This international oilfield services company with a wide range of services, including Well Construction Engineering and Planning, Contract Drilling, Directional Drilling, Drilling Technologies, Wireline Technologies, MicroSeismic, Frac Fluids Management and Equipment Rentals trade at the main Toronto board with the ticker CEZ. The experienced officers have spent many years working in executive management positions at giants like Weatherford (WFT), Schlumberger (SLB) and Precision Drilling (PDS) so they obviously do know the sector very well.

I believe most investors do not know Calmena. However Calmena has 38% Market Share in the Duvernay, it is the first company to perform Pumpdown Plug & Perf operations in the Duvernay and it has performed the highest pressure Pumpdown in the WCSB (85 Mpa) as shown at the corporate presentation.

Calmena has taken the strategic decision to expand worldwide for several reasons. On the one hand, it can mitigate their business risk as working only within one country is like a company which makes all its revenue from one customer. If the customer goes broke and/or face problems then this specific company will face serious problems too. On the other hand, it wants to exploit the vast opportunities in the new hot oil spots worldwide following the major drillers like Weatherford (WFT), Superior Energy Services (SPN), Calfrac (CFWFF.PK), Schlumberger (SLB), Halliburton (HAL), Key Energy Services (KEG) and Nabors Industries (NBR). For example, which company can ignore the growing importance of Colombia in the oil map as this country has been identified lately by major foreign players such as Shell Oil (RDS.A), Ecopetrol (EC), Petrobras (PBR), Chevron (CVX), Lewis Energy, and others due to its huge, unconventional shale oil potential? Recently Exxon Mobil (XOM), the world`s largest oil and gas company, acquired interests in Colombia too. All that being said, Calmena has a well balanced mix of revenue coming from 6 different countries/regions worldwide and works for giants as shown at the corporate presentation. To name a few Shell (RDS.A), Encana (ECA), Suncor Energy (SU), Talisman Energy (TLM), Petrobras (PBR), Chesapeake (CHK), Ecopetrol (EC), Pemex, Birchcliff Energy (BIREF.PK) have their wells serviced by Calmena.

Checking the fundamentals of Calmena we can confirm easily that Calmena is probably the most undervalued company with the lowest PEG ratio of the energy services sector both in USA and Canada. The growth yoy both in EBITDA and in revenue is strong and consistent. The revenue growth yoy is about 80% and the EBITDA growth yoy is about 500%! The funds from operations growth yoy is amazing and it hits 700%! This growth is driven primarily by the operations in South America (Colombia, Mexico, Brazil), followed by the ones in USA, and then in Canada. The operations in Libya have experienced a drop versus 2011 due to the Qaddafi regime turbulence but things have stabilized there lately and the worst are behind us.

The annual revenue are estimated to be about $170-200 million so the Company trade currently for one third its annual revenue. The sales mix is Contract drilling (51%), Directional Services (38%), Wireline Technologies (2%), Equipment rentals (5%) and Frac Fluids management (4%).

In addition, the long term debt/stockholder equity ratio is as low as 0,3 so the Company does not face any debt issues.

Despite all that, this unknown company trade currently well below its book value with a pbv=0,4 !

In terms of the recent corporate developments, the Company and the private company Spectraseis announced an agreement to jointly provide microseismic acquisition, imaging and advisory services in Canada. Spectraseis has industry leading data acquisition and microseismic imaging and interpretation capabilities that deliver seamless fracture imaging and analysis solutions for all types of fracture monitoring using surface, near surface and deep borehole arrays.

According to the recent outlook from the management, there are even better news to come in 2012 as overall, Canada, US and Mexico should continue delivering solid results throughout the remainder of 2012. Colombia builds on the recent successes achieved, Libya returns to full operations and the Brazilian operations change focus from start-up mode, so the company expect strong financial results will continue.


Rating: 4.1/5 (7 votes)

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