E.TO - Enterprise Group

[doc75]

Nice work, doc75 into looking into management. Should be noted, VP O'Kell, is also on the BOD for the two companies Jaroszuk is CEO of.

 

Exactly.  And the Leis Industries thing began very recently (this summer).  I'd like for the management team to be 100% focused on growth at Enterprise.

 

I have to say I like what management has done so far with Enterprise. Their acquisitions seem to be paid for at cheap multiples (~3x ebitda), and often the equipment has proprietary technology, and sounds like large build-out capabilities/backlog.  Also, the sales team is doubling so actually realizing capacity looks likely if the demand/market stays steady. The conference call from 6 months ago was exceptional:

 

Yeah, the story sounds good, for sure.  They're certainly very quick to point out that they've been buying at 3x ebitda (it's highlighted in their corporate presentation deck).  I must admit I do wonder why they're able to buy these businesses for such low multiples in this environment.

 

https://www.dropbox.com/s/qn6e2kejbh7k7qm/Enterprise-transcript-from-March-27-conf-call.pdf

 

Management really speaks like they know the industry very well, focused on limiting downside by multiple revenue streams and maintenance/infrastructure contracts diversifying away from oil and gas industry growth (though well positioned to capitalize on an LNG boom).

 

I'm sure you know this, but the above link is a transcript of an interview with a newsletter writer who recommended the stock.  Interesting to read, but it's really a pump piece -- certainly  shouldn't be taken the same as a conference call with real investors or anything of the sort.

 

[yadayada]

yeah but no clear reasons why this is not a buy at 4-5x 2015 earnings. They have proven already that there is massive demand. Margins clearly show that as well. If this goes right for a few years your getting at least your money back.

 

Also can they lie in that call? The macro statistics seem to check out. The technology  they use is really good, and that seems to check out as well if you google it. Only thing im having doubts with is the patents.

[Laxputs]

They aren't lying in the call. Management seems very competent. They know the industry well. And when you say

  If this goes right for a few years your getting at least your money back.

 

I assume you mean doubling your money when you say "getting your money back". The base case here is a double by next year's end and that is with no big changes to the market demand. If "everything goes right", this stock exceeds that.

[yadayada]

CEO bought about 32k worth warrants. Stock dropping further. It is now in real bargain territory. Double in a year possible triple in 2 years. On not even very aggressive assumptions. Any reason why it is dropping like a rock? Some macro events happening in canada that could affect this ? I guess buying on the way down is harder then it looks :) .

[Guest 50centdollars]

CEO bought about 32k worth warrants. Stock dropping further. It is now in real bargain territory. Double in a year possible triple in 2 years. On not even very aggressive assumptions. Any reason why it is dropping like a rock? Some macro events happening in canada that could affect this ? I guess buying on the way down is harder then it looks :) .

 

CEO has been buying both the warrants and shares the last few days. The market just panicked because of the China data that came out the other day. I think in time this goes back up. I don't own this stock as I own MCR and AVE instead but those warrants look very attractive at $0.13

[shhughes1116]

Hard not to like this company.  If you look at their most recent quarter and back out their growth capex, they would have been cash flow positive in what has generally been a slow time of the year for them (read: unprofitable time of the year). 

 

Aside from the LOI they signed a little while back to expand their oil-field rental business, I am very positive on this stock because of the following three items:

1. The new piece of boring/tunneling equipment they purchased (link to picture in someone's earlier post).  I think this will set them up for some high-margin contracts in the near future that are not baked into the share price;

2.  The flameless heaters are being used during the slow periods to do maintenance work on storage tanks.  This opens up a new revenue stream for a period when the units would generally be underutilized.

3.  The flameless heaters can be used to achieve thermal expansion of pipelines prior to installation.  This reduces expansion-related defects in the pipeline during operation.     

[Gamecock-YT]

Doubled down on the stock today. How are you guys going about buying the warrants? Ameritrade/Scottrade looks to be a no go for them.

[yadayada]

IB, added a little dribble today.

[shhughes1116]

@ 50centdollars

 

Where do you see the disclosures for CEO purchases?  I checked SEDAR, Edgar, and OTCMarkets, but don't see any Form 4's or similar documentation.

 

I have been averaging down about every nickel since .80/share, so I am getting close to a full position.  I guess this is a question of conviction....

[Guest 50centdollars]

@ 50centdollars

 

Where do you see the disclosures for CEO purchases?  I checked SEDAR, Edgar, and OTCMarkets, but don't see any Form 4's or similar documentation.

 

I have been averaging down about every nickel since .80/share, so I am getting close to a full position.  I guess this is a question of conviction....

 

Here you go:

https://canadianinsider.com/node/7?menu_tickersearch=E+%7C+Enterprise+Group

[ItsAValueTrap]

@ 50centdollars

 

Where do you see the disclosures for CEO purchases?  I checked SEDAR, Edgar, and OTCMarkets, but don't see any Form 4's or similar documentation.

 

I have been averaging down about every nickel since .80/share, so I am getting close to a full position.  I guess this is a question of conviction....

Go to

canadianinsider.com

 

If you need to go back further or read the original source, go to

sedi.ca

[Laxputs]

Jaroszuk has bought ~240k shares in the public market and ~200k warrants in the public market, all in the past couple weeks. That's bullish.

[doc75]

Jaroszuk has bought ~240k shares in the public market and ~200k warrants in the public market, all in the past couple weeks. That's bullish.

 

True... but good to keep some perspective:  He sold over 2 million shares when it was trading over $1. 

 

Don't get me wrong. Certainly positive.  But it's not like he's going all in or anything. And I'm sure these guys are aware that insider purchases of these small companies are very closely watched.

 

Yes, yes... I'm a cynic. ;)

 

Edit:  Jaroszuk's trading history is curious.  He dumped over 2M shares at $1.10 on April 30, just before Q1 results released on May 13. Why was he allowed to trade so close to releasing results?  I thought blackout was from end of Q until release of results.  I guess that's a company-specific decision? 

 

Anyway, now just before end of Q he's buying shares at $0.70-$0.75 along with warrants that will be in the money if the stock reaches $1.16+ by next December. If I set my cynicism aside for a moment, I suppose he could've needed a couple million in cash to buy his wife a nice b-day gift, but all the while he fully expects the stock to be higher this time next year.

 

[yadayada]

I think he put quite a bit of his own money in several years ago. Maybe he was taking profits? And now at 70 cents the price does not make much sense. It could trade at less then 3x earnings in 1.5 years or so if price stays the same.

 

Is there complete trading history of like the last 4-5 years somewhere?

[doc75]

I think he put quite a bit of his own money in several years ago. Maybe he was taking profits? And now at 70 cents the price does not make much sense. It could trade at less then 3x earnings in 1.5 years or so if price stays the same.

 

Is there complete trading history of like the last 4-5 years somewhere?

 

Yeah, I don't really fault him for taking some money off the table. In all seriousness, he might've wanted to buy a nice mansion.  But the timing did seem odd.  And I still don't know why he was able to trade two weeks before Q release. (Undoubtedly my misunderstand of the rules as opposed to rules being broken.)

 

You can get complete trading history from SEDI.ca.  Just look for summary reports and fill in the desired date ranges.  I looked into his trading a while ago.  Yes, he has made a large number of open market purchase dating back to 2006.  (A large number also came via options.)

[yadayada]

Q1 wasn't bad though. It was actually quite good. We could be results oriented here. It could be pure chance that the stock is down. Im not sure myself why the stock is down?

[doc75]

Q1 wasn't bad though. It was actually quite good. We could be results oriented here. It could be pure chance that the stock is down. Im not sure myself why the stock is down?

 

I think in Q1 there was some negative reaction to the decreased margins and EPS.  Some folks wanted to see organic growth and synergies from the prior acquisitions, but instead they see a large financing and decreased margins... fear of growth by endless acquisition and no real added value. 

 

I'm not saying these are good reasons.  Just comments from others that I've read on the web.

 

Also:  I think a lot of people jumped into this (and Macro and others) pretty early, purely on spec. They made out like bandits.  Now they see the stock price retracing, and they panic sell because for all they know the stock is going to do a round trip.  Various newsletters pumped these stocks early on and any type of "take profits" signal would also cause lots of selling. No idea if that's what's at play here.  (Maybe not, as the volume has been large.)  But that's life on the venture exchange. 

 

My guess is that recent weakness is simply a general flight from the sector as people fear that oil under $90 will shut down all of western Canada.

 

 

[Gamecock-YT]

Im not sure myself why the stock is down?

 

Some dilution concerns with the new acquisition taking place.

[sculpin]

From Jennings - pdf also attached...

 

Valuation Update:

 

At current levels, Enterprise trades at approximately 2.7x EBITDA and 4.5x earnings (fully-taxed), based on our estimates

for F2015. Our comparable group trades at an adjusted average of approximately 4.8x EBITDA and 9.5x earnings,

respectively. On that basis, we view it as very attractively priced, as it currently receives a 50% discount to its peers.

We present our quarterly outlook in the table below.

E.TO.pdf

[doc75]

From Jennings - pdf also attached...

 

Valuation Update:

 

At current levels, Enterprise trades at approximately 2.7x EBITDA and 4.5x earnings (fully-taxed), based on our estimates

for F2015. Our comparable group trades at an adjusted average of approximately 4.8x EBITDA and 9.5x earnings,

respectively. On that basis, we view it as very attractively priced, as it currently receives a 50% discount to its peers.

We present our quarterly outlook in the table below.

 

Thanks for posting.  It says they're expecting Enterprise to fund the acquisition with existing resources.  Seems unlikely to me.  At end of Q2 they had $28M in liquidity (cash+credit).  But since that time they've completed their $20M cap-ex program (I assume at least $10M spent since end of Q2) and they need another $16.5M for this purchase and associated cap-ex upgrades.  Maybe they could swing it but wouldn't that make their working cap really tight?    Even if they extend the line of credit on the bigger borrowing base, I expect to  see some equity as part of the purchase.

 

The acquisition is about twice as large ($ terms) as I expected.

 

[yadayada]

i also doubt they will do only 47m in ebitda in 2015. Probably will be closer to 60. Just by judging on return on current capex and current annual ebitda. But i guess it is nice that taking conservative measures, it is trading at a forward 4.5x PE.

[shhughes1116]

@ doc75 - I assume there will be some type of share issuance.  If my recollection serves me right, that is part of their process for acquiring these complementary business.  Sign owner/operator to long-term contract to ensure continuity of operations, and fund part of the purchase price with share issuance to make sure the contracted owner/operator has incentive to grow the business.  My assumption is that they fund maybe a 1/3rd of the purchase price with shares...so maybe ~5,000,000 share dilution.   

 

The share dilution doesn't bother me much with this one.  The important thing for me is two-fold: (1) On the front end, they seem to be paying a reasonable price (3.3x EBITDA); and (2) Can the combination of synergies and $3.5 million cap-ex double the acquired business's EBITDA after one year of ownership/operation? 

 

So far, the ability to generate cash and plow it right back into the business makes me happy - the upcoming quarterly results will indicate whether this is being done at a reasonable return.  If the upcoming results show some positive cash flow and show that the return on invested capital is relatively high (as indicated when they described their 2014 capex plan), I think we will see a step-change in share price. 

 

I guess the primary risk for this one is that the bottom falls out on the prince of oil. 

 

 

[shhughes1116]

For those of you invested in Enterprise Group, you may be interested to know about a press release today.  I couldn't find it on their website, but I noticed it buried in E*Trade.  Apparently they took delivery of their new tunneling/boring system AND have already contracted it out for part of the fourth quarter.  Project is worth $2.5 million.  Hard to tell what the margins will be on this particular device/project, but if they are consistent with other parts of their tunneling business, that is a pretty big chunk of EBITDA added to the bottom line in one quarter.  More importantly, they seem to think they can operate this device all year round, even in Arctic conditions.  Based on that information, I have to think that the estimates for 2015 EBITDA are somewhat low. 

[Laxputs]

http://www.enterprisegrp.ca/2014/10/02/enterprise-group-takes-delivery-of-direct-pipe-system-and-announces-the-systems-first-major-project/

[yadayada]

i think i know why enterprise got hammered. Same with MCR. Looks like all the oil and gas stocks have been hammered hard.

 

Anyone knows why other firms couldn't order this equipment from the same guy in germany? It does not seem to be made by enterprise?