Enerflex is a buy, TD Cowen says

With a plan in place to reduce debt, TD Cowen analyst Aaron MacNeil likes what he sees from Enerflex (Enerflex Stock Quote, Chart, News, Analysts, Financials TSX:EFX).

On October 1, EFX announced the partial redemption of senior secured notes, to the tune of $62.5-million, or ten per cent of the total.

“The partial redemption of our notes reflects ongoing focused efforts to reduce debt, lower net finance costs and optimize Enerflex’s debt stack,” said CFO Preet Dhindsa. “We are pleased with the results of these efforts to date and expect to make further progress in coming quarters. The recent extension and expansion of the RCF provides ample liquidity to support our global business and we remain on track to reach our target leverage bank-adjusted net debt-to-EBITDA ratio of 1.5 times to 2.0 times.

The analyst says the move could pave the way for a number of positives for investors.

“In the press release, management states that ‘we see a visible path for Enerflex to increase shareholder returns and look forward to providing further updates to stakeholders in coming months’,”  MacNeil wrote. “Since Enerflex is comfortably in its leverage target range, we believe that a dividend increase could occur as early as Q3/24 results on Nov. 14, 2024. Enerflex has an annual dividend commitment of $9.4-million, 2025E simple payout ratio of 3.9 per cent and dividend yield of 1.2 per cent. “In this context, Enerflex has the capacity to provide a competitive yield without a significant increase in its cash commitments, and we expect that it will err on the side of conservatism out of the gate, leaving room for future increases. Our forecast implies that Enerflex has ample room to pursue a wide range of initiatives including a combination of further debt repayment, a more meaningful dividend, buybacks and organic growth.”

As reported by the Globe and Mail, MacNeil October 2 maintained his “buy” rating and price target of $11.00 on Enerflex.