Newalta shows good quarter
On February19,2015 Newalta reported it's fourth quarter and year-end results.It mostly treats waste (both oil and water) and solid wastes.Total sales for the year were up by only 10% and profits by around 10%.But adjusted EBITDA went from $150 million to $177 million for an increase of 20%.However Newalta(NAL) informed it's shareholders that it intends to sell it's Industrial Division for $300 million in cash proceeds.They also increased the dividend by 14% to $.50 per share.
The Industrial Division
Newalta says that it has an agreement with a company called Revolution to sell the division for $300 million;the agreement will be executed in Q1 2015.This will allow Newalta to focus on it's core operation which is waste treatment of oil and water.However with the dip in commodity prices this may not be such a wise strategy.Nevertheless the price seems to be in a reasonable range.Although it is only about 84% of the last year's sales, it is slightly more than 6 times last year's profit and almost 6 times last year's EBITDA.5 times profit is considered a good standard for small,growing operations as this business is.Both gross profit and EBITDA have been stable since 2013.NAL intends to use the proceeds to reduce debt and fund capital expenditures.NAL realizes that the return on new business in waste treatment could exceed that in their Industrial Division.Judging by the EBITDA of the other two divisions in Q4 relative to EBITDA of the Industraial Division they may be right.But this blog recommends that NAL try to renegotiate a price that captures closer to 90 or even 95% of last year's sales.
Continuing Operations
The main business of the other two divisions is the treatment of waste water and waste oil streams.This business is getting revenue growth in heavy oil contracts,growth in the U.S. and oilfield operations.It has been affected by the fall in the price of oil but EBITDA went up in Q4 not down;it went from $33 million in Q4 2013 to $40 million in Q4 2013.For 2015, Newalta has added 3 new satellites and a heavy oil facility in Fort Mcmurray, Alberta.It has also tested (with Dupont) and is ready to use a new water treatment technology.Surprisingly Q4 EBITDA for combined operations(including Industrial) has gone up 21% while annual EBITDA went up only 18%.Clearly profitability is improving.This is partly because NAL has streamlined it's operations.But Newalta like other companies in the oilpatch has become cautious and reduced capital expenditure expectations from $190 million to $105 million for 2015.
2015
Newalta not only is actively seeking a deal to sell it's Industrial Division ;it is also rationalizing it's continuing operations.It will be eliminating 180 positions and reducing corporate expenses.This will result in savings for 2015 of $25 million.Also NAL has a plan to reduce debt by using proceeds from the sale of the Industrial Division to pay down debt.It says that it intends the debt to EBITDA ratio to fall from it's present 2.78 times to 2.0 times.Commodity prices are expected to remain low for at least the next quarter and this should affect the oil services sector but NAL saw it's Q4 Get advice on oil services from blogdaleupsome revenues rise by more than 10% and EBITDA by almost 25%.Reorganization of the other two divisions will also help to keep costs down.But this blog figures that it may regret selling the Industrial Division if it doesn't get closer to 95% of last year's sales.If the price cannot be renegotiated then perhaps they should look at getting a small royalty on sales or profits.
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The Industrial Division
Newalta says that it has an agreement with a company called Revolution to sell the division for $300 million;the agreement will be executed in Q1 2015.This will allow Newalta to focus on it's core operation which is waste treatment of oil and water.However with the dip in commodity prices this may not be such a wise strategy.Nevertheless the price seems to be in a reasonable range.Although it is only about 84% of the last year's sales, it is slightly more than 6 times last year's profit and almost 6 times last year's EBITDA.5 times profit is considered a good standard for small,growing operations as this business is.Both gross profit and EBITDA have been stable since 2013.NAL intends to use the proceeds to reduce debt and fund capital expenditures.NAL realizes that the return on new business in waste treatment could exceed that in their Industrial Division.Judging by the EBITDA of the other two divisions in Q4 relative to EBITDA of the Industraial Division they may be right.But this blog recommends that NAL try to renegotiate a price that captures closer to 90 or even 95% of last year's sales.
Continuing Operations
The main business of the other two divisions is the treatment of waste water and waste oil streams.This business is getting revenue growth in heavy oil contracts,growth in the U.S. and oilfield operations.It has been affected by the fall in the price of oil but EBITDA went up in Q4 not down;it went from $33 million in Q4 2013 to $40 million in Q4 2013.For 2015, Newalta has added 3 new satellites and a heavy oil facility in Fort Mcmurray, Alberta.It has also tested (with Dupont) and is ready to use a new water treatment technology.Surprisingly Q4 EBITDA for combined operations(including Industrial) has gone up 21% while annual EBITDA went up only 18%.Clearly profitability is improving.This is partly because NAL has streamlined it's operations.But Newalta like other companies in the oilpatch has become cautious and reduced capital expenditure expectations from $190 million to $105 million for 2015.
2015
Newalta not only is actively seeking a deal to sell it's Industrial Division ;it is also rationalizing it's continuing operations.It will be eliminating 180 positions and reducing corporate expenses.This will result in savings for 2015 of $25 million.Also NAL has a plan to reduce debt by using proceeds from the sale of the Industrial Division to pay down debt.It says that it intends the debt to EBITDA ratio to fall from it's present 2.78 times to 2.0 times.Commodity prices are expected to remain low for at least the next quarter and this should affect the oil services sector but NAL saw it's Q4 Get advice on oil services from blogdaleupsome revenues rise by more than 10% and EBITDA by almost 25%.Reorganization of the other two divisions will also help to keep costs down.But this blog figures that it may regret selling the Industrial Division if it doesn't get closer to 95% of last year's sales.If the price cannot be renegotiated then perhaps they should look at getting a small royalty on sales or profits.
Get advice on oil services sector from Blogdaleupsome
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