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  5. ESI: In an answer to a recent question on Market Call on Ensign Energy Services the guest stated that ESI will have free cash flow of $200 million this year which works out to be half of its market cap ... [Ensign Energy Services Inc.]
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Q: In an answer to a recent question on Market Call on Ensign Energy Services the guest stated that ESI will have free cash flow of $200 million this year which works out to be half of its market cap of about $400 million. This seems to be a pretty good situation but I feel that I must be missing something here. What is the debt and is it a concern, Is new drilling likely to gain traction over the next couple of years. What do insiders hold and are they buying. Do you have any ideas on why this stock has not really done much over the last few years.. Thanks.
Asked by Rob on November 08, 2023
5i Research Answer:

Insiders own 27% (mostly all Murray Edwards) and there has been minor net buying in the past six months. Net debt and other obligations are $1.3B, compared with $369M in cash flow and $183M in free cash flow in the trailing 12 months. It is still a very leveraged company, and this is likely why it has underperformed. Based on consensus, EPS is expected to more than double next year. No doubt it is a very cheap stock, and energy companies are flush with cash. However, most have been paying dividends and buying back stock, instead of drilling. ESI's consistency is an issue: it misses forecasts 75% of the time. This week it reported a 3Q loss on only a tiny increase in revenue. It has targetted debt reduction of $200M this year and $600M through 2025, and if this happens investors will likely pay more attention. In the sector, with so many companies debt free and paying a dividend, it has a hard time getting attention. We would note that interest expenses were $130M in the past 12 months, and with rising rates investors are just cautious. We think it could do well under the right conditions, but also needs to be considered risky until debt comes down.