May 21, 2018 - 9:42am EST by
2018 2019
Price: 16.69 EPS 0 0
Shares Out. (in M): 47 P/E 0 0
Market Cap (in $M): 789 P/FCF 0 0
Net Debt (in $M): -26 EBIT 0 0
TEV (in $M): 763 TEV/EBIT 0 0

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Solaris Oilfield Infrastructure (SOI) is a 60% EBITDA margin oil services company operating primarily in the Permian and Eagleford trading at 3.6x our estimate of next year’s EBITDA and growing EBITDA at triple digit rates. We believe SOI has over 100% upside over 18 months as the Street begins to see the cheap multiple, believe the FCF story and differentiate the company from traditional pressure pumpers and sand miners.

Summary of Thesis: SOI’s siloed pneumatic sand storage systems save E&P companies time and money on frack jobs in addition to providing transparent tracking software to track sand from mine to wellhead. The company manufactures and leases the systems and the number of systems leased out is expected to more than double during 2018 which will more than double their run-rate revenues and EBITDA. If the EV/EBITDA multiple gets cut in half from TTM of 16x to 8x by end of 2019, the stock would be worth $34 (>100% upside).

The Business: SOI’s flagship product is a unique 6-pack silo storage system for frac proppant. Given that a picture really can tell a thousand words for someone not familiar with this space, I’ve used a lot of pictures from the company’s presentation to more easily convey the point. The best way to quickly understand how the system works is to watch the video on the company’s home page:

One of the primary advantages of this system is that it is mobile and can be setup or taken down in under an hour. In addition, due to the vertical nature of the silos, the storage takes up significantly less space on the pad than traditional boxed “sand king” systems.

The silos can be filled either with pneumatic trucks (automatically blowing sand into the silo) or with traditional belly dump trucks using a gravity-based loading system.

The majority of the company’s customers are using pneumatic trucks to fill the silos. One of the biggest issues, historically, with pneumatic filling is the dust created in the process. SOI uses a dust collection system in each silo and on the conveyor belts where it attempts to keep everything enclosed and largely reduces dust compared to other traditional systems.

Lastly, the company adds value to its customers by providing its PropView inventory management system where, for example, a management team back in Houston can view how much proppant it has in each silo at each well in the Permian. Additionally, well operators can use the Solaris app on their phone or tablet to stay on top of their proppant levels in their silos.