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Company history and business
National Energy Services Reunited Corp. (NASDAQ:NESR) provides oilfield services to exploration and production companies in the Middle East, North Africa and Asia Pacific regions. It provides an enormous range of services to upstream and midstream companies, but is geographically focused on the Middle East. The company debuted on the Nasdaq in May 2017. It subsequently acquired National Petroleum Services and Gulf Energy SAOC for $1.1 billion.
Financial strength
The company has $366 million in total debt. Broken down, it has a $525 million facility with a term loan of $300 million due in 2025, a $65 million revolver due in 2023 and $160 million in a working capital facility. Borrowings are at a three-month London Interbank Offered Rate plus 2.4% to 2.7% per annum. National Energy Services has drawn only $300 million of the term loan and $65 million of the revolving credit facility as of June 30.
The secured facilities agreement also includes covenants that restrict net debt-Ebitda to 3.50 and it includes a coverage ratio (cash flow / debt service) of at least 1.25 and interest coverage (Ebitda / interest) of at least 4 times. The company meets all covenants quite easily with $270 million in earnings before interest, taxes, depreciation and amortization and $37 million in free cash flow.
Management
National Energy Services' chairman and CEO has been Sherif Foda since its inception. He has 25 years of experience, primarily at Schlumberger (SLB), where he served as president of Europe and Africa and as vice president of the Arabian market (which is where the company is focused now).
Chris Boone has been chief financial officer since May 29. Previously, he was CFO and senior vice president of Tesco Corp. (TESO), among other stints at the CFO level elsewhere.
Valuation
The company is trading at 7.15 times free cash flow, 3.25 times enterprise value-Ebitda and with a price-earnings ratio of 7.77. This is quite cheap compared to competitors that trade between 6 and 13 times earnings. It is even cheaper because the company is expecting to grow. It does not seem unreasonable to expect some growth either, due to both its track record so far and recent geopolitical events.
Risks
There are a few important risks. Oil servicing companies are dependent on investments by exploration and production companies. If oil prices are low, there isn't a lot of exploration going on while production slowly decreases. That's a negative growth environment and services companies feel that. The new oil environment created through the U.S. shale boom has already taken us through a few curious oil price cycles in recent history. I don't think we will retest the lows we've seen in past years, but it is always possible. In such an environment, it is extremely hard to do well.