Titan Energy Services (TTN)

[Ender]

I'm going to start a new thread because there doesn't seem to be one for Titan Energy Services (TTN) (not to be confused with TTE).

TTN listed on the ASX during the middle of last year at a $1. The market knocked TTN down likeit was knocking everything else down at the time. TTN has three divisions, drilling in the CSGspace, provision of short-term mining accommodation and catering for mining camps. Drillinghas good utilisation and contracts for all 4 rigs with the majors. However, thereal story is in the high growth, high margin, provision of short-term miningaccom and catering services (the latter of which seems to have beenoverlooked by the market). Currently trading at 92.5 cents. I have them doing 19 cents EPS in 2013,which they could upgrade if they come through the wet season relatively fine.At 19 cents EPS 2013 there's a lot of overlooked valuehere.

[mark100]

I've held since the results release back in Aug 2012. I note Pie Funds is also a recent convert. Also a few ex Wilson HTM guys behind TTN who have plenty of contacts in the CSG industry as they were some of the initial CSG backers

[FarmerGeorge]

Don't hold but have also been looking at these. I picked up a few 'mining services' type co's when they were all knocked back though mid/late '12 but kicking myself a little for not picking these guys up earlier. Need to do a little more research, my concern is that accom / catering looks like it has pretty low barriers to entry, I don't expect you could make high margins in that business for long.
Happy to be convinced otherwise!

[Ender]

FarmerGeorge, good question on the camps business. The company advised that they are not seeing margin pressure and have been able to maintain their margins for the following reasons:



· Largest provider of containerized camps for short term accom
· TTN move it, set it up, maintain it and cater to it through Nektar
· Safety pre-qualified with APLNG
· Access to transport. Transport’s at a premium
· Modern accommodation, with the oldest room 4 years old.
I don’t expect the company to be able to maintain 40% margins indefinitely, but they appear defensible in the short term for the reasons listed above and (1) the shortages created by the demand from the CSG boom and the company’s network of contacts within the industry which seems key to securing these contracts.


Since my last post, TTN have upgraded their guidance for FY13(again) to between 9-10m EBIT. Including the recent Hofco acquisition, TTN should post between 11-12m EBIT and I wouldn’t be surprised if they beat this number. My EPS estimate for FY13 is around 21 cents.

FY14 should be an even stronger year for TTN:



Rigs – TTN will have the full benefit of Rig 4 (only a quarter contribution in FY13);
Camps - should increase from an average weighted number of 426 (FY13) to (conservatively) 650 for FY14 (they expect to have 600 by the end of FY13) with 40% EBITDA margins;
Catering – expect this to more than double FY13 contribution; and
Hofco – a full year contribution from Hofco with increased utilisation and high margins.


I have Titan doing over 25 cents EPS in FY14.

Obviously, a holder.

[steve fleming]

Some balanced commentary from http://thehardquestions2.blogspot.com.au/2013/05/titan-energy-services-ttn-living-up-to.html , putting some context around the TTN position, relative to other mining service companies.

Titan Energy Services – (TTN) – Living up to its name!"The last few weeks has seen a deluge of downgrades in the mining services sector. The much talked about and much anticipated capex cuts from the major miners have now moved from words to actions. The last quarter has been a disaster for mining services companies with United, Transfield, Worley Parsons, Cardno, Coffey and Fleetwood all announcing substantial earnings downgrades due to deferred and cancelled projects. This is a situation that looks as though it will get a lot worse before it’s shows any signs of getting better.

TTN however, managed to buck this trend. This week TTN confirmed that it has secured a 6-month extension on its Altas 3 rig, which is under contract to APLNG. It further confirmed that all four of its drill rigs are now contracted well into the FY14 financial year. It seems that at least for the next little while, TTN’s drilling business is likely to deliver on its earnings targets.

It also indicated that the accommodation and camp services businesses continue to grow faster than expected as the Queensland based CSG projects start to ramp up. This is also welcome news for investors as was the confirmation that TTN is on track to meet its upgraded earnings guidance of $12.5M - $13.5M EBIT for this year.

Whilst this is all very positive, the question that is starting to come up is - What are the longer term impacts on TTN if the rest of its peers are falling down around it? As discussed in an earlier post (http://thehardquestions2.blogspot.com.au/2013/05/titan-energy-services-ttn-is-this-titan.html), TTN is in a good spot, but there are risks. Given TTN’s drill rigs are specifically for CSG drilling and CSG drilling looks likely to continue for years to come, this side of the business should be solid. The accommodation side of the business, whilst growing strongly at the moment, may start to come under pressure.

As announced by accommodation services peer Fleetwood (FWD), demand for its space has reduced dramatically as have the room rates it customers are prepared to pay. Although TTN is in a good spot in regard to demand for its space, there may be a risk that its customers see the rate reductions being achieved by the resources companies and starts to put pressure on TTN for better rates as the contracts are renewed. Why would TTN's customers pay up for accommodation if the rest of the market is getting price cuts? Moreover, as the mining services companies weaken, investors will mark down the PE multiples that they are prepared to pay for these types of companies. How will a devaluation of the peer group translate into how investors value TTN?

The longer the rest of the sector remains under pressure the more the risks mount against TTN. However, at least for the moment, TTN is living up to its name being one of the few players in the mining services sector to deliver growth."

[mark100]

Nice forecast for FY14

[FarmerGeorge]

Nice forecast for FY14



Yes. I'm now a holder. Still have concerns around competitive pressures but the results are there in black and white - and the company remains upbeat. Will be watching closely...

[DarkHorse]

Just been having a look at this with view to purchase. I note excellent results last month, and increase in substantial holding from PIE Funds. Seems to be under the radar and suffering from being categorised in out of favour 'mining services' category, although CSG industry is still growing.

Only broker comment I can find online is from Shaw Stockbroking (which is not recommending any other 'mining services' other than Mermaid): "TTN has clear competitive advantages to its peers, possesses a strong balance sheet and generates good cash flows for a capital intensive business. It is one of the few stocks in the sector with industry tail winds, and even after a considerable share price run still trades on a very conservative FY14 EV/EBIT multiple of 5.7x and an FY14 PE of only 8.6x, predicated on double-digit EPS growth of 27.5% and 26% over the coming 2 years. Value remains and we recommend TTN as a BUY."
It has already seen a sharp seemingly sentiment driven correction from late Oct - Dec 2013 and the price appears to have stabilised.
Any thoughts?

[FarmerGeorge]

Can't add much DarkHorse. In my opinion the story stacks up and the strategy, to date, has been well executed. Valuation is the key, and keep an eye on any competition in that catering space - doesn't take much to set up a catering business and cut TTN's lunch. All that said, I have increased my position over the past couple weeks - but I keep a close watch.

[DarkHorse]

Cheers FarmerGeorge, appreciate your wise comments. Price drop late last year along with other mining service providers seems to have provided a good margin of safety in valuation; and while they don't have a strong moat I can't imagine it's simple to set up and transport such a package of suitable containerised accommodation and catering services in remote areas (please anyone correct me if I'm wrong)...certainly they're not running a café on Ponsonby Road :)

[FarmerGeorge]

Honestly I don't think it would be hugely difficult to "set up and transport such a package of suitable containerised accommodation and catering services in remote areas" - but I have been, and am being, proven wrong on that one each reporting date. I hope to continue to be shown up as wrong!

[DarkHorse]

Mmm, interesting one. Certainly - not 'hugely difficult' on one level and I'd keep a careful eye on competitive pressures and margins; nevertheless they've got a great track record versus existing competitors, and in their niche markets they have developed networks, expertise, economies of scale, synergies and cross-selling opportunities through complementary services which I don't think could be replicated overnight - would you agree?

[Toulouse - Luzern]

Huge drop today minus 71.8% on updates on contract position and profit guidance.

[NZSilver]

heavy! looked at this but never bought (however hold HDX in mining services arena), oversold?

[stoploss]

Think Pie funds been in this one ....wonder if they are still in ......

[DarkHorse]

Ouch even for a very small holder! You were so right Farmer George - lesson learned. They sure saved up a lot of bad news for one announcement - I've never had a holding fall nearly so far in a day before. Can anyone hazard a guess at likely EPS based on the updated guidance of 10-12m EBIT?

[noodles]

Ouch even for a very small holder! You were so right Farmer George - lesson learned. They sure saved up a lot of bad news for one announcement - I've never had a holding fall nearly so far in a day before. Can anyone hazard a guess at likely EPS based on the updated guidance of 10-12m EBIT?

I calculate 15c on EBIT of $11mill

[noodles]

Did any body read the fine print (6pixel print)
"Excludes potential expenditure in relation to the realisation of the contingent liability relating to the retention payment to key personnel of up to $1.9m remaining under the Hofco acquisition agreement, which is subject to conditions being met. If realised this would reduce targeted EBIT by up
to $1.9m."

So EBIT is going to be lower than $10-12nill

[DarkHorse]

Thanks for that Noodles, and yes I did notice the fine print. I see fat prophets think the market has overreacted due to the negative sentiment in the sector. They have a point - although the announcement highlights a shared vulnerability inherent in any type of mining services, ie uncertainty of ongoing revenues coupled with high fixed costs.