NCS Multistage Holdings Inc - BUY RECOMMENDATION

The 25-day quiet period on NCS Multistage Holdings Inc. (Pending: NCSM) will end on May 23, allowing the firm's IPO underwriters to publish detailed positive reports and recommendations on the company for the first time since it went public in mid-April on May 24th.

Our firm has studied IPO quiet period expirations at length; while we do not see all recent IPOs becoming BUYs at this time, certain companies with a unique combination of characteristics do make the cut for us. We have found above-market returns for a statistically significant sample in a window of time, beginning five days prior to the event and ending shortly after.

When a company's IPO underwriters are able to publish reports and recommendations pertaining to the company beginning May 24, the initial research is usually positive - and leads to a short-term uptick in the company's stock price.

For this reason, along with NCSM's strong market debut, underwriting team, and fundamentals, we are optimistic that NCSM stock could jump surrounding the event.

We suggest experienced investors consider purchasing shares of ahead of 5.23 to take advantage of a full ramp-up in price.

So, What Does NCS Multistage Do? (Business Overview)

NCS Multistage develops and sells coiled-tubing fracturing tools used in the coalbed methane gas industry. In addition, the company offers its AirLock buoyancy system for landing horizontal casing; multistage unlimited fracturing systems; coiled-tubing deployed fracturing tools; and downhole completion tools for both conventional and unconventional completions. Its product portfolio includes: casing buoyancy systems, liner hangers, interventionless toe sleeves, refract systems, sand-jet perfs, ballshift sleeves and hybrid completions, multicycle frac sleeves, thru-coiled tubing fracs, annual fracs, and casing sleeves. The company incorporated in 2008, and it is based in Houston, Texas with operations in the United States, Russian Federation, China, Australia, Argentina, Mexico, and Canada.

Additional Operational Notes: Current Financials & Highlights From MD&A

NCSM recently announced Q1 results:

• Revenues increased $35.5 million (154%) from Q12016; these ticked in at $58.6 million; management attributes this largely to higher commodities prices and more sector activity.
• The company sold 17,418 sliding sleeves, a 145% increase as compared to the first quarter of 2016.
• Net income ticked in at $6.3 million, up significantly from a net loss of $(8.1) million in the first quarter of 2016.

The multistage technology has been used in the completion of over 7,600 wells comprising more than 155,000 individual frac stages. The company initially targeted the Canadian market, and as a result, 26% of all horizontal wells in Canada used NCSM products at the end of 2016. In addition, sales in the United States accounted for 23% of revenue in 2016, with the majority of those sales being in the Permian Basin. NCSM derived 93% of its revenue in 2016 from the sale of Multistage Unlimited products.

Management Team Highlights

President Marty Stromquist co-founded NCS Multistage and currently is the President. He served as CEO in 2016. Mr. Stromquist previously co-founded Cemblend Systems and Frac Source. His prior experience comes from positions at Halliburton, Pioneer Natural Resources, and Halliburton Energy Services Canada. He holds numerous patents for completion-related tools and downhole procedures and he has authored numerous technical papers and articles.

As we noted in our IPO preview, Robert Nipper also co-founded the company and currently serves as chief executive officer. He was previously the board chairman from April 2016 to Feb. 2017 and the executive chairman from April 2016 until Nov. 2016. Nipper brings more than 30 years of experience in the oil and gas industry and has invented several patented technologies relating to downhole oil and natural gas and geothermal service equipment.

Competitors: Schlumberger, Halliburton, Baker Hughes

NCS Multistage Holdings faces competition from other providers of pinpoint stimulation equipment and companies that offer other services within the hydraulic fracturing sector. The major competitors include Superior Energy Services (NYSE:SPN), Nine Energy Service, Packers Plus Energy Services, Weatherford International (NYSE:WFT), Baker Hughes (NYSE:BHI), Halliburton (NYSE:HAL), and Schlumberger Limited (NYSE:SLB).

NCSM remains significantly smaller than many larger peers, and is valued somewhat above its group (see below).

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Impressive Early Market Performance

NCSM was priced at $17, at the high end of its expected price range of $15 to $18. The stock closed at $19.54 on its first day of trading. It reached a high of $21.93 on May 9 after dropping to $21.55 on May 5. The stock currently trades at $24.09 (market close 5.19.2017).

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Conclusion: Buy NCSM Ahead of Quiet Period Expiration Event

NCSM has proven to be an innovator in its industry. Since inception in 2006, NCSM has been granted 8 U.S. patents and 13 related international patents. It has 40 U.S. patent applications pending and 51 international patents pending.

The company made a splash when it IPO'ed in April, and we see a second chance to buy into this growing firm.

NCSM's IPO underwriters could affect at least a temporary price increase through the release of positive reports beginning after 5.23.2017.

The influential group includes Credit Suisse, Citigroup, Wells Fargo Securities, J.P. Morgan, Simmons & Company International, Raymond James, RBC Capital Markets and Tudor, Pickering, Holt & Co.

In its SEC filings, the company did note that following industry trends could impact future performance:

• oil and natural gas drilling completion activities
• increasing adoption of pinpoint stimulation
• increasing well complexity and focus on completion optimization

We are often cautious on oil/gas plays given the volatility here; however, in this case NCSM's strong growth propels us to suggest a short-term buying opportunity for experienced investors.