EUR 850.00 For Business Accounts Only

Morningstar | FI Updated Forecasts and Estimates from 12 Oct 2018

Frank's International had an excellent second quarter, with revenue improving 14% sequentially and adjusted EBITDA margins moving to 7% from negative 5% previously. Much of the improvement (particularly on the top line) came from the Blackhawk segment, which Frank's acquired in late 2016. However, even excluding Blackhawk, Frank's still achieved its best companywide result in two years, owing to broad improvement in tubular running services, driven by improving oilfield activity levels across global markets. Our fair value estimate and narrow moat rating remain unchanged.

The uplift in the Blackhawk segment, which sells cementing tools and other well construction products, reflects largely the ongoing execution of management's strategy to expand Blackhawk into international markets, where the young business had until now a negligible presence. The purchase of Blackhawk was premised on such an expansion, and we incorporated it into our forecasts for Frank's following completion of the deal. There is clear visibility for continued growth in the segment as Frank's obtains additional certifications to nearly double the number of countries (vs. second quarter levels) in which it offers Blackhawk products.

In Frank's core business, tubular running services, the company experienced very strong results in its International segment, with revenue growing 22% sequentially and EBITDA margins strengthening to 23% from just 5% in the previous quarter. Improved results came from improved activity levels for the company driven by both overall industry activity level increases as well as market share gains.

Management reported that its global market share on offshore jackup rigs had increased from 10% to 18% over the last year. Although traditionally Frank's has eschewed less complex jackup work in favor of more lucrative work on deepwater offshore rigs, the company has pivoted to more jackup work in order to make up for highly depressed deepwater activity levels. Its ability to execute that plan while still earning strong margins in the International segment is encouraging.

Quite possibly, recent developments among major players in the global tubular running services market have improved the overall industry situation. Leading competitor Weatherford is undergoing a complete overhaul, and management is targeting improved pricing in several business lines. This could have contributed to improved market share for Frank's in the second quarter. Likewise, in the U.S. land market, Nabors-owned Tesco has retrenched its operations somewhat recent, which could have contributed to the strengthened pricing that Frank's management reported.