On Tuesday, BMO Capital Markets updated its outlook on shares of Step Energy Services Ltd. (STEP:CN) (OTC: SNVVF), raising the price target to Cdn$5.00 from the previous Cdn$4.50. The firm maintained its Market Perform rating on the shares.
The adjustment follows an announcement that Step Energy has agreed to a buyout arrangement with its largest shareholder, ARC Financial. Under the terms of the deal, the company will go private, with shareholders receiving $5.00 per share in cash. This offer represents approximately a 40% premium over the stock's most recent closing price.
BMO Capital's analyst noted the potential for additional bids for Step Energy, given the company's valuation. Even after the bid, Step Energy is trading at roughly 2.4 times its enterprise value to EBITDA (EV/EBITDA) and has a free cash flow (FCF) yield of about 15% on BMO's 2024 estimates. This is considered inexpensive compared to peers, which are valued in the 3 to 4 times EV/EBITDA range.
The analyst's comments highlight that while the current bid aligns with the raised target price, the valuation metrics suggest there could be room for other interested parties to make competing offers.
Step Energy's decision to accept the go-private bid from ARC Financial marks a significant transition for the company, with the raised price target by BMO Capital reflecting the terms of the agreement. The new target matches the offer price, indicating the analyst's view that the bid is fair in the context of the current market conditions.
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