NCS Multistage (NASDAQ:NCSM) Research Update

Highlights:

• Arrowhead is updating its coverage on NCS Multistage Holdings, Inc (“NCS” or the “Company”) with a fair value bracket of USD 45.89 – USD 56.08 (Share Price on March 29, 2023: USD 23.00) based on Discounted Cash Flow Valuation and Company Comparable Valuation.
• NCS is an oilfield services and equipment company, which provides highly engineered products and associated services to support onshore and offshore oil and gas well completion and field development projects. The Company offers products and services in four categories: Fracturing Systems (including Enhanced Oil Recovery (“EOR”) products), Well Construction, Tracer Diagnostics, and Repeat Precision.
• NCS has established leadership positions across a focused product line portfolio. The Company claims to be the worldwide leader in pinpoint stimulation and North America’s top provider of tracer diagnostics services. NCS has been able to achieve high double-digit growth in revenue over the past few periods including a 31.3% increase in FY’22 as compared to FY’21 and its most recent guidance indicates a full-year FY’23 Revenue of USD 175 million to USD 190 million.
• The Company completed successful field trials of the PurpleFire perforating gun with a wireline company at the end of Q3’22 and began selling the product through several other wireline customers. The Company expects this would significantly increase its Revenue from PurpleFire perforating guns from the second or third quarter of FY’23.
• The Company maintains lean operations by outsourcing most of its supply chain activities to local and overseas partners and only managing core business aspects like R&D, design, engineering, assembly/testing, and quality control internally. This allows the Company to operate on a “capital-light” business model with a smaller fixed asset base and limited investments in field equipment and customized vehicles. As a result, the Company’s capex was 0.7% of Revenue in FY’22.
• Oil and Gas prices have reduced from their peak in May 2022, but they are still higher compared to historical prices. Renewed government support at least in the short term, and a focus on energy independence have encouraged many companies in the US to commit additional capital to drill more wells. Additionally, the rising energy demand and the European embargo on Russian oil have led to an increase in drilling activity in North America. This is expected to create a derived demand for Oil drilling, and equipment manufacturers like NCS.