Natural Gas Services Group, Inc.

NGS Details

Natural Gas Services Group, Inc. (NYSE: NGS) is a company that designs, manufactures, rents, and sells natural gas compressors and other related equipment. The company's CiP (Cylinder-in-Plane) product line is a proprietary range of compressor frames, cylinders, and parts. It had 1,221 natural gas compressors rented to 78 clients as of September 30, 2021, with a total horsepower of 288,706.

Latest News:

• Share Repurchases: On October 04, 2021, NGS authorized the repurchase of up to USD 10 million of its outstanding common stock expiring on September 30, 2022, unless terminated by the Board of directors sooner. The authorization from October 23, 2020, which expired on September 30, 2021, has been replaced by this buyback program authorization.

9MFY21 Results:

• Minor Progress in Revenues: NGS' total revenues increased by 6.52% to USD 54.39 million during 9MFY21 (ended September 30, 2021), compared to USD 51.06 million during 9MFY20, due to higher parts as well as rental sales.
• Incurred Losses: During 9MFY21, the company had a net loss of USD 3.57 million, compared to a net income of USD 3.69 million during 9MFY20.
• Healthy Balance Sheet: As of September 30, 2021, the company had a cash balance of USD 24.42 million with no outstanding debt.

Key Risks:

• Customer Concentration Risk: NGS generates most of its revenue from a small number of clients, with Occidental Permian, Ltd. accounting for 30% of net sales and 35% of account receivables in FY20. As a result, losing any of its key customers could harm its bottom line.
• Competition Risk: NGS competes directly with larger equipment and service providers who have more financial and operational capabilities at their disposal. As a result, competitors' superior product development or advanced innovation may harm the company's operations and cash flows.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

NGS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

NGS' stock price has surged 10.47% in the past three months and is currently trading around the mid-band of its 52-week range of USD 8.00 to USD 12.97. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 39.20. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 11.22.

Considering the correction in the stock price, improvement in gross margins, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 10.66, down 5.50% as of November 30, 2021, 1:50 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.