The company we will focus on has become a major player in the temporary accommodation and support services market, particularly in the mining and energy sectors. Its growth has been driven primarily by the Australian segment, which has seen significant revenue growth due to higher occupancy and rising accommodation prices. For the second quarter of 2024, it reported revenue of over $108 million, up 32% year-on-year. With a plan to reach AUD500 million in revenue by 2027, the company is in a strong position and its Australian operations suggest further growth potential.

In addition, the firm is attracting investor attention with its dividend policy and its recent announcement to buy back up to 5% of its shares. This combination of growth and shareholder returns makes it an attractive investment opportunity, which has been reflected in the share price rising by over 20% in the last three months. With an ROE of 11%, comparable to the industry average, and 64% growth in net profit over the past five years, the company is demonstrating its ability to use capital efficiently and reinvest earnings, suggesting a strong long-term outlook.

Company performance

Civeo Corporation $CVEO is a Canadian company that specializes in temporary housing and support services for workers in the mining and energy sectors. It was formed in 2014 as an offshoot of Oil States International. Its product offerings include mobile accommodation facilities, fully equipped housing, food services and other support activities that ensure the comfort and safety of workers in remote locations.

Civeo has a strong presence in Australia, Canada and the US. In Australia, it focuses on services for the mining and energy sectors, primarily in the coal and gas sectors. In Canada, it operates primarily in Alberta, supporting oil and gas projects. And in recent years, the company has also expanded into Latin America, where it sees potential for further growth.

Civeo is strengthening its market position through strategic acquisitions and partnerships. In 2020, it merged with BHP Billiton, strengthening its capabilities and service offering. This acquisition has helped to consolidate its portfolio and ensure stable revenue in a volatile energy market environment. The company has also invested in upgrading its accommodation facilities to meet rising standards of comfort and efficiency.

Civeo is distinguished by its emphasis on quality and flexibility in its services. Its ability to respond quickly to client needs, including the deployment of mobile units, gives it a competitive advantage. The company is also now looking to integrate modern technology into its services, ensuring more efficient facilities management and better communication with clients.

Highlights

Civeo specialises in a variety of support services, with the Australian segment being a key growth driver. In the second quarter of 2024, this segment achieved revenue of $108.6 million, a 32% increase from $82.5 million in the same period in 2023. This growth was driven by the number of rooms billed in Australian villages, which increased by 6% from approximately 588,000 to 625,000, indicating higher demand and occupancy.

In addition, the average room rate increased from $75 to $78, driven by an increase in the consumer price index in new contracts, reflecting Civeo's ability to secure favourable pricing terms. The higher number of rooms billed and the increased rates indicate a strong market position. This growth is in line with Civeo's target of reaching AUD500 million in revenue by 2027.

Civeo Corporation also recently announced that its Board of Directors has renewed its share buyback authorization, allowing the Company to repurchase up to 5% of its total common shares over the next twelve months.

Civeo plans to conduct the repurchases through public market transactions and/or privately negotiated transactions and fund them through available cash and cash generated from operations.

Civeo's stock has risen more than 20% in the past three months, which has sparked interest in taking a closer look at its financial ratios, particularly its return on equity (ROE). ROE is a useful tool for assessing a company's effectiveness in generating returns on investment from shareholders. This ratio measures a company's profitability in relation to shareholders' equity.

ROE is calculated as the ratio of net income (from continuing operations) to shareholders' equity. For Civeo, over the past twelve months, the ROE has been 11%, meaning that for every dollar of equity, the company has generated $0.11 of profit.

Next, it is important to examine the relationship between ROE and earnings growth. Higher ROE and profit retention rates (i.e. reinvestment of profits in the company) usually lead to higher growth rates. Civeo has an acceptable ROE that compares to the industry average, which is also 11%. The company boasts 64% net profit growth over the past five years, indicating that management may have made the right strategic decisions.

When we compare Civeo's net profit growth with the industry, we find that Civeo has achieved a higher than average growth rate of 13% over the period. Investors should assess whether the expected earnings growth is already factored into the stock price, which will help determine whether the stock has a bright or dark future ahead.

Civeo has an average dividend payout ratio of 30% over the past three years, indicating that the company is retaining 70% of its earnings. This indicates a well-covered dividend and effective reinvestment of earnings, which is supported by the fact that Civeo has been paying dividends for over a decade, demonstrating its commitment to sharing profits with shareholders.

How was the last quarter?

Civeo Corporation reported results for the second quarter of 2024, reporting revenue of $188.7 million and net income of $8.2 million, for earnings per share of $0.56. The company generated operating cash flow of $32.4 million, adjusted EBITDA of $31.3 million and free cash flow of $30.9 million during the quarter. Compared to the second quarter of 2023, when Civeo reported revenue of $178.8 million and net income of $4.5 million, there was an increase in revenue and net income, indicating a positive trend for the company.

Civeo's president and CEO, Bradley J. Dodson, said the second quarter saw an increase in rooms billed at Canadian lodges and Australian villages, as well as growth in integrated services for existing clients. However, these improvements were partially offset by an expected decline in LNG-related activity at Canadian mobile camps and the sale of McClelland Lake Lodge. Dodson added that Civeo generated significant free cash flow and returned $10.3 million of capital to shareholders through a quarterly dividend and share repurchases.

The Canadian segment reported second-quarter revenue of $79.5 million, down 17% from the year-ago period. This decrease was due to the expected decline in LNG-related activities, including mobile camp demobilization costs. Conversely, the Australian segment generated revenue of $108.6 million, an increase of 32% compared to the prior year period. This growth was supported by a 6% increase in rooms billed and increased integrated services activity from existing clients.

As of June 30, 2024, Civeo had total liquidity of approximately $159 million, which included $151.5 million available through revolving credit facilities and $7.4 million in cash. The Company's total debt was $47.5 million, a decrease of $31.1 million from March 31, 2024. In the second quarter of 2024, Civeo invested $5.3 million in capital expenditures, down from $6.9 million in the prior year.

The company also declared a quarterly dividend of $0.25 per share. During the quarter, Civeo repurchased approximately 274,000 shares worth approximately $6.6 million. Civeo continues to maintain full year 2024 guidance of revenue in the range of $625 million to $700 million and adjusted EBITDA in the range of $80 million to $90 million, as well as capital expenditure guidance in the range of $30 million to $35 million.

Long-term results

Analysis of Civeo's long-term results shows a positive trend in several key areas, with total revenue for the trailing 12 months (TTM) of $709.204 million, up slightly from $700.805 million in 2023 and $697.052 million in 2022. This sequential revenue growth is supported by growing demand for Civeo's services, particularly in the Australian segment, which has posted strong gains over the past year.

Cost of revenue rose to $536.627 million, up from $530.287 million in 2023. While total costs rose, gross profit rose to $172.577 million, still higher than the $170.518 million in 2023 but slightly lower than the $179.989 million in 2022. This decline in gross profit may indicate rising operating costs, but even so, the company's gross margin remains relatively stable.

At the net profit level, there has been a marked improvement, with shareholders' net profit rising to $35.141 million in 2023, up from $30.157 million in 2023 and a loss of $2.963 million in 2022. This indicates a more efficient business model and success in returning to profitability. Earnings per share followed a similar pattern, with basic EPS rising to $2.36, up from $2.02 in 2023.

Analyst expectations

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