National Energy Services Reunited Corp.

NESR Details

National Energy Services Reunited Corp. (NASDAQ: NESR) operates as an oilfield services provider focused on the MENA and the Asia Pacific regions. The company’s range of Production Services includes hydraulic fracturing, cementing, coiled tubing, filtration, completions, stimulation, pumping, and nitrogen Services. It is also engaged in offering its clients access to reservoirs via Drilling and Evaluation (D&E) services, which comprises drilling downhole and directional drilling tools, fishing tools, wireline, slickline, drilling fluids, and testing and rig services.

Securing Multi-Service Line Contracts: On June 02, 2021, the company announced that it was awarded various multi-service line contracts for Integrated Rigless Services and Drilling & Completion Fluids in the MENA region from major international oil companies (IOCs). These contracts are worth up to USD 150 million and have a tenor of three years.

Expanding the Scope of Business via Partnerships: On April 19, 2021, NESR formed a partnership with Beyond Energy Services & Technology Corp., an Alberta-based private oilfield service company, aimed at providing Managed Pressure Drilling (MPD) services in the Middle East, Asia, and Africa regions. Previously, on April 01, 2021, NESR signed a preliminary agreement to acquire certain oilfield service segments worth over USD 200 million of Action Energy Company W.L.L., an oilfield service company in Kuwait. With activities in the Production, Drilling, and Evaluation categories, the transaction aims to put NESR on par with Kuwait's top-tier suppliers. Also, in March 2021, the company partnered with PHX Energy Services Corp. to impart its Directional Drilling operations in the Middle East.

Q1FY21 Results: During Q1FY21 (ended March 31, 2021), the company registered a growth of 6.59% YoY in revenues to USD 212.43 million vs USD 199.30 million in Q1FY20. The Production Services and D&E Services segments contributed 64.38% and 35.62%, respectively, to the total revenue during the quarter. The operating income for Q1FY21 was USD 15.73 million, 15.03% lower than USD 18.52 million in Q1FY20. Adjusted EBITDA declined slightly by 1.41% to USD 50.22 million in Q1FY21, owing to a greater allocation to the pass-through revenue from hydraulic fracturing operations and the difference in activity levels and product line mix YoY.

Key Risks: Some of NESR’s key customers are National Oil Companies (NOCs), which have a significant dominance over the petroleum industry in their countries. As a result, NESR’s business is prone to side effects from regional economic and political conditions in its countries of operations, which are primarily in the MENA region. In addition, the demand for oilfield services is directly correlated to the level of exploration and production activity and the capital spending capabilities of oil & gas companies, which are affected by volatile oil price trends.

Valuation Methodology: EV/EBITDA Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

NESR Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: NESR stock surged 29.83% and 79.95% in the past 6 and 9 months, respectively, and is currently leaning towards the higher band of the 52-week range of USD 5.93 to USD 15.95. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 42.63. We have valued the stock using the EV/EBITDA Value-based relative valuation methodology and arrived at a target price of USD 11.44. Considering the significant uptick in the stock price, high growth potential, robust balance sheet, and current valuation, we recommend an “Expensive” rating on the stock at the current price of USD 13.73, down 0.58% as of July 13, 2021, at 1:44 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.