E.TO - Enterprise Group

[doc75]

Does anyone have any thoughts as to why the CEO and CFO were out purchasing warrants and shares in the open market just before end of Q3 despite knowing that they didn't deliver? 

 

I'm always curious about these things.  I assume these guys are rational.  So why wouldn't they wait for the inevitable market sell-off (particularly in the warrants!) after releasing Q3 numbers?  Is it all simply a matter of optics?    (Insiders of microcap companies surely know that their trades are scrutinized very carefully.)

 

Don't get me wrong, I'm not complaining that they ate some of their own cooking.  I just don't understand the behaviour because it's irrational.

 

[shhughes1116]

You assume that 26m capex is basically pissed away. I think that is much too pessimistic

 

25% year over year growth seems pretty generous given the information they provided about the 27 million capex and their Q3 results.  Is there a particular reason why you think they will do substantially more than that?

 

In a perfect world, the combination of their roll-up strategy, capex/investment, synergies, and cross-selling should yield a substantial amount of incremental EBITDA and thus generate some pretty juicy returns.  With that said, that outcome shouldn't just be an assumption...management has yet to establish a track record of effective capital allocation that generates value for shareholders. 

 

Don't get me wrong, I am long this stock.  However, I want to see more than just increasing G&A and stock option grants. 

[KinAlberta]

Any thoughts on the company now? 

 

What's interesting is that I haven't seen any insider buying on the price collapse that's occurring commensurate with oil prices taking a dip.

 

 

Poor timing on equipment deliveries to offset rental costs.  Soon, I'd expect, a lot of equipment rentals will be priced extremely favourably.

 

The price collapse though is potentially creating many buying opportunities.  Cheap companies become extremely cheap to those that can finance their acquisition.

[yadayada]

My thoughts are that we will feel stupid for not buying here. For thinking oil could possibly stay low for that long and that long term these things wouldn't be fine.

 

People keep touting cash break even levels of 20-40$. But if it stays this, most oil producers would lose money if you include capex investments.

 

They can survive a few bad years, no dangerous leverage or anything. And it is basicly trading at less then a 2x PE right now. Unless management is full of shit? If I had a small position I would double down now.

[KinAlberta]

I haven't doubled down.  Just added a tiny bit more.  While they aren't too dependent on oil and gas, they will still likely get hit indirectly by any reductions in infrastructure spend.  I think that is why I'm not seeing any high degree of opportunistic insider buying. That may indicate that the bottom may still be a ways off as the true impact of a worst case scenario is determined by the market.  In this realm, "Cheap" with amazing frequency becomes "extremely cheap".

[Laxputs]

Recent insider purchase:

 

https://www.insidertracking.com/node/7?ticker=E*CA

 

Seems to leave out the whole link. Just copy paste the whole thing.

[heisenberg]

it's very time dependent

if oil goes back up quickly it's a steal, but if oil stays here ( no need to even go down ) then ebitda 2015 = 50% of ebitda 2014

I think they are calls on this stock, basically they are going to decay much faster than the model would let you think

With oil where it is, this stock may be off 5% a week for some time

 

[yadayada]

who cares what happens next year. If 2-3 years from now they get a lot of work again, it is a steal too. Only reason it is not a steal is if oil and gas industry in canada collapses. Or if management was just full of shit all this time.

[shhughes1116]

it's very time dependent

if oil goes back up quickly it's a steal, but if oil stays here ( no need to even go down ) then ebitda 2015 = 50% of ebitda 2014

I think they are calls on this stock, basically they are going to decay much faster than the model would let you think

With oil where it is, this stock may be off 5% a week for some time

 

 

Obviously the company exists within a country that is dependent on oil and gas.  however, you do realize that a substantial amount of their revenue and EBITDA (more than half if I recall correctly) comes from non-hydrocarbon work....and just as importantly, the price of natural gas has held up relatively well, which comprises a substantial portion of their hydrocarbon work.  So I don't think we are going to see a 50% drop in EBITDA in 2015.

 

Don't get me wrong...the drop in crude pricing will certainly impact enterprise directly (deflation in pricing of service work) and indirectly (negative impact on Canadian economy).  However, for a company that is focused on rolling up smaller companies in the hydrocarbon space and the infrastructure space, this is a fantastic opportunity to purchase smaller companies at even better multiples. 

 

Most importantly, they are not overly leveraged.  So during this downturn, they will likely continue to generate cash flow, which can be reinvested by acquisition or by returning to shareholders or by paying down existing debt.

 

[sculpin]

GMP

 

Enterprise Group (E-T) BUY, Target $1.00 (from $1.50)

 

Enterprise is leveraged to growth in Alberta and B.C. from oil and gas, pipeline and LNG projects,

to demographic and infrastructure growth. While a prolonged slowdown could impact

Enterprise’s prospects, we remain positive for the following reasons:

 

 Enterprise has focused on acquiring best-in-class companies in niche markets. The

company offers differentiated or proprietary services in markets that have moderate-tohigh

barriers to entry for new competitors.

 

 Through the acquisitions of Hart, Westar and Artic Therm, we forecast that equipment

rentals will account for more than 40% of revenue in 2015. These businesses typically

generate EBITDA margin in the 40-50% range and should enhance overall margin profile.

 

 In October, Enterprise took delivery of the Direct Pipe system, an advanced and

environmentally friendly tunnelling system manufactured in Germany. We forecast that

this new tunnelling systems will generate revenue of $12m in 2015.

 

 The Utilities divisions (T.C. Backhoe and Calgary Tunnelling) are leveraged to

infrastructure developments and demographic growth in Western Canada and these two

divisions should be more insulated to an economic downturn as these companies do a

large amount of work in the utility and infrastructure sectors.

Risks and uncertainties:

 

 We forecast a 20% reduction in capital spending from energy companies in Western

Canada where Enterprise generates the majority of its revenue. As a result, we forecast

that Enterprise will generate 40% of its 2015 revenue (was 50%) from its Rental division.

 

 Lower forecasted revenue from the higher-margin Rentals division will negatively impact

EBITDA margin in 2015. We forecast EBITDA margin of 31.5% in 2015 (was 35.5%).

 

 Recent oil price volatility could impact economic growth in western Canada. This could

impact the Utilities division with project deferrals or new projects moving a slower pace.

We have incorporated this into our forecasts.

 

We maintain our BUY rating with a revised target of $1.00 (previous $1.50). Our target price is

based on 6.0x (previous 6.5x) our 2015 EV/EBITDA.

 

 

[Laxputs]

Last 3 days insider purchases:

 

https://www.insidertracking.com/node/7?ticker=E*CA

[yadayada]

This is probably one of the most mispriced oil related stocks right now. Seems priced like they will very likely liquidate without earning much before that happens.

[yadayada]

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

 

CEO just dumped a load of shares. I really have a bad feeling about this thing...

[Gamecock-YT]

Yeah that looks pretty bad on the surface. Especially as he was buying smaller lots just this month.

[yadayada]

it seems he was buying smaller lots just recently to pump up the price so he could get more in that private transaction? Let's hope this is not because he realized he bought total bombs with those small companies.

[shhughes1116]

it seems he was buying smaller lots just recently to pump up the price so he could get more in that private transaction? Let's hope this is not because he realized he bought total bombs with those small companies.

 

Remember there are two sides to every transaction.  Someone obviously thought buying those shares in a private transaction @ .40 was a good idea, and it doesn't appear to be the company buying his stake since I don't believe they have a normal course issuer submitted via SEDAR. 

 

So with that said, I don't see how you can get that wrapped up in insider buys/sells.  There are so many reasons to liquidate shares...maybe he was buying a new house, or decided to take advantage of tax loss selling to reduce his cash taxes.

 

 

[siddharth18]

 

Remember there are two sides to every transaction.  Someone obviously thought buying those shares in a private transaction @ .40 was a good idea, and it doesn't appear to be the company buying his stake since I don't believe they have a normal course issuer submitted via SEDAR. 

 

So with that said, I don't see how you can get that wrapped up in insider buys/sells.  There are so many reasons to liquidate shares...maybe he was buying a new house, or decided to take advantage of tax loss selling to reduce his cash taxes.

 

 

 

I've been eyeing this company for a while and was close to pulling the trigger...but this scares me. Yes there are two sides of this transaction, but we can safely assume that the buyer doesn't know as much as the seller.

 

It's over a million shares - more than all shares publicly acquired in the last six months...Should we expect any justification/explanation for the sell, from the CEO?

[yadayada]

yeah if he knows anythign about valuation it makes no sense to sell now. Q4 is suposed to show what earning power of their equipment is. And he sells a few months before that? There is a good chance if they earn like 10 million, that the stock rerates to 50-60 cents. So what is so urgent to sell such a large quantity now?

 

I think you have to see this in a probabilistic way. THere is a chance there is nothing wrong, but there is also a chance he is selling because the stock will be worth less in teh future. And those odds have just increased, which ever way you put it.

[Guest notorious546]

What are consensus 2015 ebitda estimates for the company now?

 

I'm interested in the story given what has happened but i'm going to wait until i see fourth quarter results and some insider buying. The magnitude of selling is surprising from the CEO.

 

I think given the decrease in oil prices there should be some pressure on the company/industry on margins/growth and natural gas prices have trended down lately given robust production from the united states both headwinds for the company imo. I realize only some of their business is exposed to hydrocarbons but we don't have visibility on what that looks like in a lower commodity price environment yet.

 

 

 

[Travis Wiedower]

I think you have to see this in a probabilistic way. THere is a chance there is nothing wrong, but there is also a chance he is selling because the stock will be worth less in teh future. And those odds have just increased, which ever way you put it.

 

This is something I struggle with as an outsider. While it's mostly true that "there's a million reasons to sell and only one reason to buy", CEOs selling shares at low valuations happens far too often to always brush it off as "maybe he's buying a house." I think more often than we would like to admit it's one of two things:

 

1. The CEO knows bad news is coming and is getting out ahead of time.

2. The CEO doesn't really understand valuations.

 

Neither option is good. If he believed E's stock was worth $1.00 and was smart he wouldn't be selling shares for anything but an emergency because that's just throwing money away.

[Gamecock-YT]

It was a private transaction. Via another board:

 

Leonard's disposition was not a sell - note the "Private" designation. I spoke with IR about it and it was a family based move of shares. They never hit the market and won't anytime soon.

[Laxputs]

Results out: http://www.enterprisegrp.ca/financial-statements.php

 

Conference call tomorrow morning.

 

UICS 15% 4q14 Ebitda Margins.

Rentals 40% 4q14 Ebitda Margins

 

This is very interesting, to me. UICS has depressed margins due "to higher repairs and maintenance costs, expenses associated with the expansion of the fleet and associated support personnel, and – to a lesser extent – the use of third party rentals to meet customer demands while additional equipment could be acquired.".

 

Given the EBITDA margins in the UICS segment were in the 35-40% range last two years, one would think that they will come up drastically from the 15% in 4q14, even if the company is operating in a challenging environment. The 15% is not indicative of what they can earn even in this commodity challenged environment. But I'd only be guessing if I said I should calculate using 25% or 35% margins for 2015.

 

And it is surprising to me that their rental division was able to do 40% margins in 4Q14. They've done higher in the past, but that still seems strong to me given the circumstances.

 

It will be very interesting to hear mgmt speak about Direct Pipe (DP) tomorrow. They previously guided to 30-45m revenue and north of 40% EBITDA margins. And they will likely own a second DP system by 2h15.

 

It's hard to predict what their summer revenue will be like. It's hard to predict what the industry will do over the next few years. But I think 25-35m EBITDA is a reasonable base case 2015. I think 25m+ is very likely at current run rates and with some DP. The company has very manageable debt and interest payments and now has a reduced cap-ex for 2015 of 4m maintenance and the likely purchase of a second DP. The industry is in a slowdown. The company is not very unique or exciting. And the management seem promotional and may be incapable of realistic guidance, but put a 5x multiple on 25m EBITDA, and I see 80% IRR with chances of a lot higher returns if the industry picks up.

[Gamecock-YT]

Well this is interesting...

 

At the Meeting, in addition to certain procedural matters, you will be asked to vote on two Special

Resolutions and re-elect Enterprise’s current Board of Directors. I would like to take this opportunity to

both summarize these items and provide my opinion on why you should vote in favour of these items.

 

Proposed Share Consolidation

 

This resolution proposes to consolidate Enterprise’s shares on up to a 4 to 1 basis. If the resolution is

approved, the resulting change will amend Enterprise’s capital structure such that there will be

approximately 37,101,657 issued and outstanding common shares. We believe this consolidation will

increase the marketability and the ease of investing in Enterprise, making our equity more attractive and

accessible to a broader range of investors, including both institutional investors and investment brokers.

These investors may be subject to certain share price related restrictions and transaction costs that would

be alleviated by the proposed consolidation. This proposed share consolidation does not change a

shareholder’s proportionate ownership interest in the Corporation.

 

Proposed Repricing of Stock Options

 

This resolution proposes to reduce the exercise price of 6,252,500 options that were previously issued

pursuant to Enterprise’s Stock Option Plan. This resolution will allow options held by directors and

officers to be repriced in the same manner as employees and other management personnel across our

business. A complete list of the options held by directors and officers that would be repriced is available

on page 8 of the attached Management Information Circular.

 

Stock options represent a critical component of Enterprise’s compensation philosophy. We believe that

our executives and employees should be motivated to increase not only corporate profits, but also the

value of our equity over the long-term. Stock options serve to incentivize their recipients towards

achieving this objective.

 

All of the stock options affected by this proposed resolution were issued during a time of historical

macroeconomic strength within the Western Canadian energy industry. Recent uncertainty within this

industry has resulted in significant pressure upon Enterprise’s share price, creating a lack of congruity

between the Corporation’s share price and its financial performance. An example of this is visible within

the last six months of 2014 – despite Enterprise recording consecutive quarters of record revenues and

EBITDA, the Corporation’s share price declined by more than 50%.

 

Enterprise’s success over the past two years has been primarily due to the exceptional work of all of the

Corporation’s employees, and the outstanding level of service these employees provide to our clients.

Repricing these stock options will ensure that these employees – both our senior executives and managers

within the field – are incentivized to continue to provide an unparalleled level of dedication to our

business within a challenging operating environment.

 

..

 

It is proposed that the exercise price of 6,252,500 options held by directors and officers that

have exercise prices in the range of $0.70 to $0.95 per share be changed to the greater of (i) $0.30 per

share and (ii) the closing market price of the Common Shares on the last trading day prior to the Meeting

or the next day following termination of any Black Out Period in effect on the Pricing Date. The

amendment to the exericse price of these options would be prior to giving effect to any adjustments to the

options that may be required as a result of the proposed share consolidation discussed elsewhere in this

Information Circular. Particulars relating to the options held by directors and officers which are proposed

to be repriced (collectively, the “Subject Options”) are set forth below.

Name Date of Grant Number of Options Exercise Price Expiry

Warren Cabral Nov. 18, 2013 250,000 $0.75 Nov. 18, 2016

John Pinsent Nov. 18, 2013 37,500 $0.75 Nov. 18, 2016

John Pinsent Nov. 18, 2013 100,000 $0.75 Nov. 18, 2016

Desmond O’Kell Nov. 18, 2013 250,000 $0.75 Nov. 18, 2016

Leonard Jaroszuk Nov. 18, 2013 1,100,000 $0.75 Nov. 18, 2016

Leonard Jaroszuk Nov. 18, 2013 450,000 $0.75 Nov. 18, 2016

John Campbell April 1, 2014 150,000 $0.95 April 1, 2017

John Pinsent April 1, 2014 25,000 $0.95 April 1, 2017

Warren Cabral April 1, 2014 250,000 $0.95 April 1, 2017

Desmond O’Kell April 1, 2014 400,000 $0.95 April 1, 2017

Leonard Jaroszuk April 1, 2014 500,000 $0.95 April 1, 2017

Leonard Jaroszuk April 1, 2014 1,000,000 $0.95 April 1, 2017

John Campbell Sept. 25, 2014 100,000 $0.70 Sept. 25, 2017

John Pinsent Sept. 25, 2014 40,000 $0.70 Sept. 25, 2017

Warren Cabral Sept. 25, 2014 400,000 $0.70 Sept. 25, 2017

Desmond O’Kell Sept. 25, 2014 400,000 $0.70 Sept. 25, 2017

Leonard Jaroszuk Sept. 25, 2014 800,000 $0.70 Sept. 25, 2017

[yadayada]

All of the stock options affected by this proposed resolution were issued during a time of historical

macroeconomic strength within the Western Canadian energy industry. Recent uncertainty within this

industry has resulted in significant pressure upon Enterprise’s share price, creating a lack of congruity

between the Corporation’s share price and its financial performance. An example of this is visible within

the last six months of 2014 – despite Enterprise recording consecutive quarters of record revenues and

EBITDA, the Corporation’s share price declined by more than 50%.

 

Enterprise’s success over the past two years has been primarily due to the exceptional work of all of the

Corporation’s employees, and the outstanding level of service these employees provide to our clients.

Repricing these stock options will ensure that these employees – both our senior executives and managers

within the field – are incentivized to continue to provide an unparalleled level of dedication to our

business within a challenging operating environment.

 

Are you fucking kidding me??? The price did not fall because of macro effects. The price fell because management failed to deliver their promised synergies. They way overpromised and underdelivered. If it weren't trading at about 2x earnings id sell right now. It seems like we are dealing with a classic sociopath here.

 

He issued shares, and EPS fell by fucking 50% and now he is doing this, it is almost down right criminal :/ . They will earn between 15-20m$ probably this year, which is barely above the 8c EPS they did in 2013.

[doc75]

Am I insane or is this option repricing scheme the epitome of greedy management bullsh*t?  The rationale for the repricing is ridiculous, as is the new strike price.

 

The special resolutions will undoubtedly pass, but it will be interesting to see the voting results.