Raising Expro’s FVE to $22 as Offshore Production Activity Gains Momentum Worldwide

Expro International XPRO rounded out 2022 on a high note as offshore activity gained momentum around the world. We’re raising our fair value estimate to $22 from $19, mostly due to our improved outlook for the firm’s profitability over the next several years. By our estimate, adjusted EBITDA margins will average in the low-20s through 2026, about 300 basis points higher than our prior estimate. We also slightly raised our revenue forecast, with top line growth averaging about 9% per year through 2026, roughly 50 basis points above our previous estimate. Our no-moat rating and stable moat trend are unchanged following results.

Expro exited 2022 with an adjusted EBITDA margin of 20%, in line with expectations and a marked improvement over the last several quarters (averaging 15%). Management indicated much of the improved profitability is attributable to internal cost efficiency gains. We’re thus optimistic the firm will continue to expand margins in the future as demand for offshore production and services (made up of roughly 70% of Expro’s business) continues to strengthen around the world. Offshore projects can earn anywhere between 3 and 10 times more revenue than onshore projects, and the significantly less crowded market enables Expro to maintain pricing power throughout the cycle.