STT - STT Enviro

[Laxputs]

STT Enviro. 11m m-cap but enough liquidity for a sizable position. O&G service company, environmentally focused. 2 parts to the biz. Part 1 is Systems and Solutions: neutralizing pollutants in the O&G and Mining sector. Part 2 is Tanks. Their tanks offer cost savings to industries like the oil sands and have a smaller environmental footprint than alternatives. Giving the cost cutting in the O&G sector, STT is seeing strong tank sales in that segment. It seems they offer a hedge to price/bbl declines (to some degree) and that if there is an uptick in activity in O&G/Mining, they will benefit as well without losing tank sales.

 

Their sales backlog in Dec 2013 was 14m and they did 22m revenue in 2014. Their sales backlog Dec 2014 is 28.2m. Mgmt is forecasting ~36m in revenue. GM in 2014 were 31%. Mgmt has stated that GM may take a small hit given they are competitively price but that revenue will be high.

 

Here's where I'm at with the math:

 

Revenue: 35

GM: 28%

GP: 9.8

G&A -5.2

Int Exp: -.2

Accretion Expense: -.1

Depreciation: 0 *they make no mention so I assume it's accounted for in COGS

Amortization: -.24

Share Based Comp: 0 *hopefully they don't dilute the piss out of it.

Pre Tax Earnings: 4.06

Tax @ 25%: -1.02

Net Income: 3.05

FD Shares: 40.3

NI/Share: 0.08

12x NI: .91

Cash-LT Debt/share: .02

Projected Price/share .93

Current Price .30

 

IRR 207% if realized by next March after 2015 results.

 

I may be doing something wrong here or missing something obvious or have miscalculated something. Let me know if you find it.

 

Questions and Concerns:

1. MOS. I can't seem to come up with a MOS. If revenues somehow went down to 20m (they only did 22m in 2014), and they had GM of prior years passed (say 26%), the negative operating leverage would make them unprofitable. Assets do not seem to offer downside protection.

 

2.Their S&S biz seems mainly to focus on taking the acidity out of the water. They have some proprietary solutions but I can't imagine their biz is very defensible.

 

3.Their other biz is tanks. I don't think there is anything proprietary there, even though they offer cost savings/environmental benefits.

 

 

There are tailwinds in that there will be more pressure for companies to meet more strict environmental standards and their S&S segment will be needed. The falling price/bbl will cause companies to focus on cost control and the recent Tank sales surge attest to that division's credibility.

 

They have municipal, industrial, and recurring revenues. But "any recovery in commodities (even a modest one) would accelerate our growth curve significantly as it is only that business which is currently lagging".

 

Any thoughts?

 

 

[intothebreach]

Haven't looked at it yet, but recalled seeing STT a few days ago on Saj Karsan's blog, in case you have not seen it:

 

http://www.barelkarsan.com/2015/03/stt-enviro.html?m=1