Nine Energy Service, Inc.

Nine Energy Service, Inc. (NYSE: NINE) is an oilfield services business that provides services integral to the completion of unconventional wells through a full range of tools and methodologies.

Key Updates:

• Weak margins: In FY21, the company posted a gross margin of 11.9%, which is significantly lower than the industry median of 25.2%. Additionally, the company posted a negative EBITDA margin and negative Operating margin of 9.1% and 9.3%, respectively, as compared to the industry median of 13.8% and 0.6%, respectively. This indicates surge in expenses on an operational level. Continuation of the above trend is likely to dampen the company’s upcoming performance.
• Higher accumulated deficit: The company reported a higher accumulated deficit of USD 808.4 million in FY21, as compared to USD 743.8 million in FY20, due to continuation of net losses in FY21. This is lead to liquidity crisis and might impact the company’s capital expenditure as well.
• Depressing cash flows: In FY21, the company reported an increase in net cash used in operating activities of USD 40.4 million, which is higher than USD 4.9 million in FY20. This indicates that the company is struggling to generate cash from its operations, which remains a key concern for the group. Moreover, cash balance stood lower at USD 21.5 million in FY21, as compared to USD 68.8 million in FY20. This might impact the overall liquidity of the firm.

Stock Recommendation:

The company offers development activities within the unconventional resource and corresponding capital spending of oil and natural gas companies. Hence, any cut in the capital expenditures by the oil and natural gas companies would hamper the order book of the company. The stock of NINE is available at significantly stretched valuation from EV to EBITDA standpoint with NTM EV/EBITDA ratio stood at  8.9x as compared to the Industry (Energy) Average of 5.2x. Hence, considering the aforesaid facts, we give an ‘Avoid’ stance on the stock of NINE at the closing price of USD 4.45 on March 09, 2022.

1-Year Technical Price Chart (as on March 09, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

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