Civeo Corporation demonstrated better-than-expected revenue in its most recent quarter. The company reports a 4% dividend yield and trades at 4x-5x EBITDA with little debt.
The ongoing infrastructure upgrades at three Australian villages and recent capital expansion plans may bring new capacity and enhance potential future net sales growth. The sale of the McClelland Lake Lodge in 2024 and the recently announced stock repurchase program may drive stock demand in the coming years.
Overall, the company appears significantly undervalued. Financial models reveal significant upside potential in the stock price.
Company Overview and the Australian Segment
Civeo offers an integrated suite of services for the natural resources sector, including home care, catering, and gastronomy services. The company manages logistics for accommodation, whether using existing infrastructure or developing new facilities.
By the end of 2023, Civeo operated 24 active facilities with 26,000 available rooms, of which it managed around 14,000 under clients’ ownership. In Canada, the company offers asset mobility services for short-term projects such as constructing oil transmission and distribution lines.
Civeo’s operations are divided into segments based on geographical activity: Australia and Canada. Each segment is further subdivided by the type of service provided, including accommodation and food services.
In Canada, Civeo’s accommodation and services activity is concentrated in active mining areas, mainly in British Columbia and the Oil Sands, where the company has a significant number of rooms and manages locations. The company also offers mobile asset services comprising modular constructions for personnel accommodation and food services.
In Australia, Civeo owns over 7,500 rooms in the Bowen Basin, a major coal extraction area. These activities represent almost 50% of the segment’s income. The company also owns accommodation villages in the Pilbara region and manages accommodation centers owned by clients. This segment has grown significantly in recent years due to the centrality of resource extraction activities to the Australian economy.
Mining remains a cornerstone of the Australian economy, accounting for around 13.6% of total GDP. The outlook for Australia’s mineral exports continues to improve as the world economy rebounds from the impact of the COVID-19 pandemic.
The company has also benefited from public investment policies and tax benefits for companies in the region, suggesting that new demand for services in Australia could generate organic growth. The Australia mining sector market is expected to grow at an 11% CAGR from 2023 to 2030.
Capacity Expansion in Australia
The operating results for the first quarter show sustained growth in revenues from the Australian segment, reaching $92.1 million compared to $62 million from Canadian activities. Variations compared to the previous year are due to reduced activities in the liquefied natural gas industry in Canada and increased activity in Australia.
Capital expenditure guidance for 2024 indicates business growth and expansion plans. The company expects to invest $30-$35 million, suggesting potential new lodges or enhanced services in existing lodges.
In January 2024, Civeo sold the McClelland Lake Lodge assets for approximately C$49 million (US$36 million), and further divestments could lead to increased cash in hand and a higher book value per share, enhancing the company’s valuation.
Balance Sheet
Civeo’s balance sheet shows an asset/liability ratio of more than 1x, significant property and equipment, and a healthy current ratio. With property and equipment worth $1.3 billion and a market capitalization of less than $400 million, the company appears undervalued.
Total long-term debt stands at $78 million, with total liabilities around $212 million. Total net assets are $301 million, close to the current market capitalization, suggesting limited downside risk.
Stock Repurchase Plan
Civeo has initiated a stock repurchase program, reflecting the belief that the stock is undervalued. The company offers a 4% dividend yield with a payout ratio of 35%, indicating potential returns to shareholders.
The sum of the Parts
Civeo trades at 4.99x forward EBITDA with minimal debt, 11x GAAP earnings, and 0.5x forward sales, suggesting it is significantly undervalued compared to competitors. The company’s valuation using a sum-of-the-parts approach and a DCF model indicates significant upside potential.
Risks
Key risks include concentration of activity in specific regions of Australia and dependence on the resource extraction industry. Lower exploration and production in Canada or Australia, or significant changes in commodity prices, could impact future net sales growth. Additionally, the company’s reliance on a few major clients poses a risk to its financial stability.
Civeo’s Future Plans
Civeo offers a 4% dividend yield, trades at a low EBITDA multiple, and has plans for infrastructure upgrades and capital expansion. The company’s balance sheet is in good shape, and recent asset sales and a stock repurchase plan indicate efforts to enhance valuation.
Sum-of-the-parts and DCF models suggest significant upside potential in the stock price. Despite risks, Civeo appears to be an attractive investment opportunity given its current undervaluation and growth prospects.
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I’m Nathan Goldstein, a writer and political analyst focused on simplifying complex social and political issues. My writing breaks down the intricacies of today’s society and politics to make them more understandable for you. I’m committed to providing clear and well-informed insights.
