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Step Energy (TSE:STEP)
:STEP
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STEP Energy Services
(TSX:STEP)
67Neutral
Positive Factors
Financial Performance
STEP generated free cash flow of $28 million in the quarter and has now reduced net debt to a very comfortable level.
Mergers and Acquisitions
The potential exists for another bidder to enter the ring, given several North American pressure pumpers trade at much higher levels.
Negative Factors
Market Conditions
Margin compression was a result of continued oversupply issues in the US pressure pumping market, with STEP only operating one fleet down south.
STEP Energy Services (STEP) vs. S&P 500 (SPY)
Market Cap
C$293.40M
Dividend YieldN/A
Average Volume (3M)112.14K
Price to Earnings (P/E)7.1
Beta (1Y)1.74
Revenue Growth0.05%
EPS Growth-43.08%
CountryCA
Employees1,432
SectorEnergy
Sector Strength73
IndustryFossil Fuels
Share Statistics
EPS (TTM)0.57
Shares Outstanding72,089,270
10 Day Avg. Volume24,568
30 Day Avg. Volume112,143
Financial Highlights & Ratios
PEG RatioN/A
Price to Book (P/B)N/A
Price to Sales (P/S)0.29
Price to Cash Flow (P/CF)2.10
P/FCF Ratio0.00
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
C$5.31Price Target Upside30.47% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering4
STEP Energy Services Business Overview & Revenue Model
Company DescriptionSTEP Energy Services (STEP) is a leading energy services company that provides specialized coiled tubing, fluid and nitrogen pumping, and hydraulic fracturing solutions to oil and gas exploration and production companies. Operating primarily in North America, STEP is known for its commitment to safety, efficiency, and innovative technology, offering a range of services designed to improve well performance and reduce operational costs for its clients.
How the Company Makes MoneySTEP Energy Services generates revenue through the provision of its specialized energy services to oil and gas companies. Key revenue streams include fees for coiled tubing operations, fluid and nitrogen pumping services, and hydraulic fracturing solutions. The company often enters into service contracts with exploration and production companies, with pricing based on the scope and complexity of the services provided. Additionally, STEP may benefit from strategic partnerships and collaborations that enhance its service offerings and expand its market reach, contributing to its overall earnings.
STEP Energy Services Financial Statement Overview
Summary
STEP Energy Services shows promising recovery from past losses, with solid profitability and operational efficiency. The balance sheet is stable with manageable leverage, and cash flow indicates strong cash generation despite recent dips in free cash flow.Income Statement
STEP Energy Services has shown a strong recovery with a positive revenue growth rate and improved profitability metrics. The Gross Profit Margin stands at 12.41% and the Net Profit Margin is 4.10% for TTM, indicating effective cost management. The EBIT Margin is 8.35% and the EBITDA Margin is 16.52%, reflecting operational efficiency. Despite a decline in Net Income from the previous year, the overall trajectory from past losses to current profitability is promising.75
Positive
Balance Sheet
The company's balance sheet reflects moderate leverage with a Debt-to-Equity Ratio of 0.22, which is manageable. The Return on Equity (ROE) is 10.22%, showing decent returns to shareholders. An Equity Ratio of 60.48% indicates a strong equity base, providing financial stability. However, the reduction in total assets over time could be a concern for long-term growth.68
Positive
Cash Flow
STEP Energy Services has a healthy Operating Cash Flow to Net Income Ratio of 3.75, suggesting strong cash generation from operations. The Free Cash Flow Growth Rate is negative when compared to the previous year, but the Free Cash Flow to Net Income Ratio is 0.97, indicating good cash conversion efficiency. The company has been investing significantly, which might affect short-term free cash flow.70
Positive
| Breakdown | |||||
| TTM | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 | Dec 2019 |
|---|---|---|---|---|---|
| Income Statement | Total Revenue | ||||
| 1.00B | 945.72M | 989.02M | 536.31M | 368.94M | 668.30M | Gross Profit |
| 124.49M | 116.14M | 147.59M | 17.76M | -33.41M | 6.70M | EBIT |
| 83.76M | 77.84M | 90.26M | -19.97M | -63.40M | -36.09M | EBITDA |
| 165.62M | 163.31M | 221.38M | 54.55M | -41.74M | -52.91M | Net Income Common Stockholders |
| 41.12M | 50.42M | 94.78M | -28.13M | -119.36M | -143.88M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | ||||
| 7.43M | 1.78M | 2.79M | 3.70M | 1.27M | 7.27M | Total Assets |
| 763.44M | 606.52M | 682.53M | 483.85M | 479.86M | 686.04M | Total Debt |
| 144.58M | 113.63M | 162.98M | 205.33M | 220.35M | 256.44M | Net Debt |
| 137.16M | 111.85M | 160.19M | 201.63M | 219.08M | 249.17M | Total Liabilities |
| 364.66M | 250.97M | 376.50M | 306.41M | 275.28M | 363.22M | Stockholders Equity |
| 398.78M | 355.55M | 306.03M | 177.44M | 204.58M | 322.82M |
| Cash Flow | Free Cash Flow | ||||
| 39.99M | 66.43M | 39.62M | 21.60M | 28.98M | 20.88M | Operating Cash Flow |
| 154.19M | 171.61M | 122.60M | 58.85M | 46.80M | 69.94M | Investing Cash Flow |
| -107.09M | -108.98M | -66.44M | -30.71M | -16.55M | -44.18M | Financing Cash Flow |
| -47.22M | -63.90M | -57.77M | -25.67M | -36.50M | -19.27M |
STEP Energy Services Technical Analysis
Negative
4.07
Price Trends
4.41
Negative
4.52
Negative
4.28
Negative
Market Momentum
-0.08
Positive
36.63
Neutral
17.12
Positive
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TSE:STEP, the sentiment is Negative. The current price of 4.07 is below the 20-day moving average (MA) of 4.40, below the 50-day MA of 4.41, and below the 200-day MA of 4.28, indicating a bearish trend. The MACD of -0.08 indicates Positive momentum. The RSI at 36.63 is Neutral, neither overbought nor oversold. The STOCH value of 17.12 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for TSE:STEP.
STEP Energy Services Peers Comparison
Overall Rating
UnderperformOutperform
Sector (57)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
78 Outperform | C$1.54B | 8.46 | 26.23% | 1.83% | 5.94% | 46.19% | |
75 Outperform | C$828.84M | 8.07 | 21.89% | 4.29% | 0.84% | -1.74% | |
73 Outperform | C$410.02M | 14.37 | -1.55% | ― | -7.71% | 48.35% | |
68 Neutral | C$888.77M | 8.08 | 6.90% | ― | -0.02% | 60.38% | |
67 Neutral | C$293.40M | 7.10 | 10.71% | ― | 0.05% | -43.08% | |
57 Neutral | $8.36B | 5.49 | -6.03% | 7.47% | 0.03% | -68.64% | |
48 Neutral | C$76.49M | ― | -2.44% | ― | -4.44% | 0.75% |
* Energy Sector Average
Performance Comparison
TSE:STEP
STEP Energy Services
4.07
0.32
8.53%
TSE:CEU
CES Energy Solutions
6.87
2.22
47.87%
TSE:PD
Precision Drilling
63.18
-19.55
-23.63%
TSE:TCW
Trican Well Service
4.40
0.42
10.61%
TSE:ESI
Ensign Energy Services
2.22
-0.29
-11.55%
TSE:WRG
Western Energy Services
2.23
-0.51
-18.61%
STEP Energy Services Earnings Call Summary
Earnings Call Date: Nov 14, 2024 | % Change Since: 0.00% | Next Earnings Date: Mar 11, 2025
Earnings Call Sentiment Neutral
The earnings call presented a mix of positive developments in the Canadian segment, technological advancements, and debt reduction, contrasted with significant challenges in the U.S. operations, an overall net loss, and a cautious outlook for Q4.Highlights
Canadian Segment Revenue Growth
Q3 revenue for the Canadian segment rose to $211 million from $158 million in Q3 of last year, with fracturing revenues of $173 million and coiled tubing revenues of $38 million.
Record Sand Pumped in Canadian Operations
STEP pumped a record 570,000 metric tons of sand in Q3, representing an 80% increase year-over-year.
Debt Reduction Success
STEP ended the quarter with net debt of $61 million, down from $76 million in Q2, and has paid down nearly $250 million of debt since 2018.
Technological Advancements in Fracturing Fleets
75% of STEP's Tier 2 and Tier 4 engines in the fracturing fleet now have dual fuel technology, reducing diesel usage by up to 85%.
Record Depth Achieved in Coiled Tubing
In Q3, STEP set an industry-leading milestone by completing a milling program to a record depth of 30,200 feet in the Williston Basin.
Lowlights
Net Loss in Q3 2024
STEP reported a net loss of $5.5 million or $0.08 per diluted share in Q3, compared to earnings of $10.5 million in the prior quarter.
U.S. Fracturing Operations Struggle
Q3 revenues for the U.S. segment were $45 million, down from $70 million in Q2 and $98 million in Q3 of last year. The adjusted EBITDA loss was $1 million.
Impairment in U.S. Fracturing Equipment
STEP recognized an impairment of $12.7 million on legacy Tier 1 and Tier 2 diesel-powered fracturing equipment in the U.S.
Anticipated Weak Q4 Performance
A slowdown in Q4 activity is expected due to weakening commodity prices and substantial pricing pressures, leading to a weaker quarter than anticipated.
Company Guidance
During the STEP Energy Services Q3 2024 earnings call, the company reported consolidated revenues of $256 million, a slight increase from $231 million in the previous quarter and nearly aligning with the $255 million in Q3 2023. Adjusted EBITDA was $44 million, reflecting a 17% margin, compared to $42 million (18% margin) in Q2 2024 and $52 million (21% margin) in Q3 2023. The company faced a net loss of $5.5 million, or $0.08 per diluted share, contrasting with net earnings of $10.5 million in Q2 2024 and $21 million in Q3 2023. A $12.7 million impairment was recognized in the U.S. fracturing CGU due to challenging market conditions. Canadian operations showed robust growth, with Q3 revenues reaching $211 million, driven by $173 million in fracturing and $38 million in coiled tubing revenues. U.S. operations faced a decline, with revenues dropping to $45 million. Free cash flow for the quarter was $28 million, down from $37 million in Q3 2023. Capital expenditures totaled $21 million, and net debt was reduced to $61 million from $76 million in the previous quarter. Looking ahead, STEP expects a challenging Q4 due to weakening commodity prices but remains optimistic about future LNG growth prospects. The company also announced a proposed transaction to go private with ARC Financial, highlighting strong confidence in STEP's future direction.STEP Energy Services Corporate Events
STEP Energy Services Initiates Share Buyback Program to Enhance Shareholder Value
Jan 7, 2025
STEP Energy Services Ltd. has announced approval from the Toronto Stock Exchange to initiate a normal course issuer bid (NCIB), allowing the company to repurchase up to 3,601,082 common shares, which is 5% of its total outstanding shares. This move is aimed at leveraging the current market condition where the company’s stock price is perceived to be undervalued, thus presenting an opportunity to increase shareholder value. The NCIB will commence on January 9, 2025, and will include an automatic securities purchase plan to facilitate share purchases during blackout periods. The company had previously repurchased and canceled 1,921,734 shares under a similar program, indicating a continued commitment to optimizing its capital structure.
STEP Energy Services Ends Agreement, Looks to Future
Dec 20, 2024
STEP Energy Services Ltd. has decided to mutually terminate its arrangement with ARC Energy Fund 8 due to an inability to secure necessary minority shareholder approval, with no penalties incurred by any parties. Despite this change, STEP remains optimistic about its future, focusing on innovative technology and maintaining a positive outlook for 2025, especially with potential growth in the Canadian market and new LNG capacities.
STEP Energy Services Gains Support for ARC Deal
Dec 16, 2024
STEP Energy Services has received endorsements from leading proxy advisors, ISS and Glass Lewis, for its proposed arrangement with ARC, offering a 40.4% premium on shares. This endorsement highlights the strong negotiation process and the immediate value to shareholders. Shareholders are encouraged to vote before the deadline due to potential Canada Post service disruptions.
STEP Energy Announces 2025 Budget Amid Market Challenges
Dec 12, 2024
STEP Energy Services has announced a 2025 capital budget of $78.9 million, focusing on optimizing and sustaining its operations, despite a decrease from the previous year’s budget. The company experienced challenges in the fourth quarter of 2024 due to high gas storage and low commodity prices, but anticipates robust activity in early 2025. Despite a tough market, STEP has made significant progress in reducing debt and achieving record financial results in its Canadian operations.
STEP Energy Services Shareholders to Vote on Cash Offer
Nov 16, 2024
STEP Energy Services Ltd. has announced the delivery of documents for a special shareholder meeting to approve a plan of arrangement, offering a 40.4% cash premium per share. This arrangement is backed by the independent directors of STEP’s board, who recommend that minority shareholders vote in favor of the proposal.
STEP Energy Offers 40% Premium in New Deal
Nov 15, 2024
STEP Energy Services Ltd. has announced its shareholders will receive a 40.4% premium on their shares, priced at $5.00 each, under a new arrangement with ARC Energy Fund 8. This offer represents a significant gain compared to previous trading prices and has been unanimously recommended by a special committee of the board of directors.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.