MCR.V - Macro Enterprises

[doc75]

I think you gotta look at fundamentals here. It is barely affecting fundamentals. And it is unlikely you lose money on this. You gotta give each piece of information the right weight. And I would not put much weight in this. And since management owns a sizable stake, I trust they will do their best to good value for shareholders.

 

Well I'm not placing a sell order because of this.  I just don't like it.  I see this type of stuff all the time and it always pisses me off.  I don't think it's really defensible just because the CEO owns 30% of the company.

 

Clearly they are *not* doing their best to give good value to all shareholders.  The strike price is way too opportunistic.  And a primary reason for the opportunity is some poor management (the flubbed contract).

 

Now, it is possible that they decided ages ago they would do an option grant on this date, using a 30 day trading avg or something like that as the strike.  If that's the case then I have to temper my criticism somewhat.    It just amazes me how often option grants occur near lows on the venture.

 

[yadayada]

yeah i meant that they will not destroy a lot of shareholder value since management owns large stake int his. They might enrich themselves and employees a bit, but not to a point where it will cause serious underperformance.

 

Also I would not say they are bad management just because of this one bad operation. You don't know all the details, and sometimes shit just happens.

[cameronfen]

I think management does have a decent history of related party transactions and other slightly unsavory practices (look at the proxy I forget what it was).  This stock was a no-brainer until I read the proxy, now its only an average size position for me. 

[shhughes1116]

I contemplated splitting my allocation between Macro Enterprises and Enterprise Group Inc, although ultimately opted to put all of the money with Enterprise Group.  While I agree one is unlikely to lose money on Macro Enterprises, I think there is a higher probability of upside with Enterprise Group given the obvious runway for growth (new hydrovac units, new flameless heating units, and new tunneling/boring unit).  The current share price doesn't seem to price in any growth beyond what they are earning today, and the potential LNG work in a few years is a free option.  My primary concern with Enterprise Group is dilution when purchasing other companies...however, this seems to be mitigated by their success in purchasing complementary companies for 2-3.5x EBITDA,  With Macro Enterprises, the upside thesis seems to be that the owner/operator doesn't screw up again (with respect to their poor pricing of pipeline work).  The growth in Enterprise Group seems to provide a higher margin of safety, in my humble opinion.   

[Laxputs]

The obvious question is how will falling oil prices hurt their pipeline construction segment and how will it affect their recurring revenue/maintenance contracts. It is difficult to look at their historical revenues when oil prices have dipped to get a sense of what ~80$ bbl or less may do to their business given they have been growing so much and were not the same company during those times.

 

I know that around half of their revenue is from maintenance/pipeline integrity work, and that segment should have higher margins.

 

Does anyone have any insight to falling oil prices and pipeline construction?

 

Supposing they had 1/2 their 2014 proforma 220mm revenue and 23% gross margins. 9.5mm G&A. 7.2mm Depreciation.  .8mm interest. 33.3 shares. 10x pre-tax multiple. That comes out to today's share price of 2.34$. But that implies they get 0 new projects. They will get some new projects and its extremely unlikely their revenue is not 50% of 2013/2014 numbers. They are virtually net-debt free so downside risk is minimal.

[orion]

Is it just for me or do others also have poblems accessing their website?

[Guest 50centdollars]

Is it just for me or do others also have poblems accessing their website?

 

Did they change their site? I found this http://www.macroindustries.ca/

[HeresyValue]

I love reading the willful blindness and ignorance of shareholders when management steals from shareholders. Thanks guys! Gave me a good laugh.

[Patmo]

I love reading the willful blindness and ignorance of shareholders when management steals from shareholders. Thanks guys! Gave me a good laugh.

 

Go back to yahoo boards.

[HeresyValue]

I love reading the willful blindness and ignorance of shareholders when management steals from shareholders. Thanks guys! Gave me a good laugh.

 

Go back to yahoo boards.

 

I thought this was it. Sometimes I really can't tell the difference.

[yadayada]

Yea let's only focus on one thing and then value the stock on that. And ignore large inside ownership, cheap PE, trading below book value, recurring revenue etc. Let's ignore all that, and focus on that one thing only. Because that is what valueinvesting is all about. Taking one piece of information, blowing up its importance, and ignoring everything else.  ::)

[doc75]

I love reading the willful blindness and ignorance of shareholders when management steals from shareholders. Thanks guys! Gave me a good laugh.

 

Okay, so obviously Heresy struggles to contain his ego.  But I was originally drawn to his blog because he shared an interest in Hyduke Energy, which was a perennially under-performing energy services company in Alberta that traded well below tangible book.  It has since undergone a management makeover and I am very impressed with the new team. Look at the insider action on Hyduke since the management change, and read the Outlook section from their Q3 results.  The comparison with Macro (and many other companies in the patch) is pretty astonishing, in my opinion.  It's also interesting how well Hyduke's price has held up even with the oil price meltdown, and even with less-than-stellar operating metrics. 

 

http://finance.yahoo.com/news/hyduke-announces-third-quarter-fiscal-065700133.html

 

I've really been learning a lesson this year as regards good management being #1 priority.

 

 

[investor-man]

I love reading the willful blindness and ignorance of shareholders when management steals from shareholders. Thanks guys! Gave me a good laugh.

 

Go back to yahoo boards.

 

+1 I know it's the Internet but please be civil

[jwfm1985]

Picked up some more around 2.36. Not expecting much out this quarters results, but this price is too good to pass up. We're trading well below liquidation value now, company is cash flow positive; there is a fair bit of downside protection. Not sure who mentioned Aveda earlier, but pretty compelling value there as well (with better management).

[doc75]

Picked up some more around 2.36. Not expecting much out this quarters results, but this price is too good to pass up. We're trading well below liquidation value now, company is cash flow positive; there is a fair bit of downside protection. Not sure who mentioned Aveda earlier, but pretty compelling value there as well (with better management).

 

What are you expecting in terms of quarterly results? As per guidance, there's going to be a huge YOY drop in revenue; around $33m this year compared to $60m last year. I expect an improvement in margins over Q2 but I think it's overly optimistic to assume they'll crank back up to 20%+.  Despite the depressed share price, my worry is that the market won't have much patience in this uncertain oil-price environment. (So even substantial margin improvement will be greeted with doubt that it will continue.)

 

As for liquidation value, I assume you're talking into account the valuation management put forward for $30m above book on their equipment?  How much faith do you put in that number?  What discount do you apply to PP&E when you calculate liquidation value?  I'm a pessimist and always give it 30-50% haircut depending on my naive view of asset liquidity (fire sale effect, plus leakage due to "transaction costs"). 

 

I'd love to buy a bunch of this company. It looks so cheap!  Just haven't been able to pull the trigger.  Things like this in the MD&A don't help:

 

"The Company’s legal counsel, Bull, Housser & Tupper LLP bills the Company for legal services and this

includes activities related to Mr. William McFetridge, a partner in Bull, Housser & Tupper LLP, who is a

Director of the Company. During the six months ended June 30, 2014, Bull, Housser & Tupper LLP

billed $391,000 (six months ended June 30, 2013- $209,000) (not including disbursements and taxes) to

the Company and its subsidiaries and were based on the agreed terms between the parties. At June 30,

2014 the Company had recorded $311,000 (June 30, 2013 - $45,000) in accounts payable to Bull,

Housser & Tupper LLP.

 

During the six month period ended June 30, 2014, the Company engaged The Commercial Capital

Corporation to assist in evaluating ongoing financial requirements and other various opportunities. The

Company was charged $60,000 as at June 30, 2014 (June 30, 2013 - $nil). At June 30, 2014, the

Company had recorded $nil balance (June 30, 2013 - $nil) in accounts payable. Mr. Wayne Albo, Chair

of the Company’s Audit Committee and member of its Board of Directors is also the Chairman of The

Commercial Capital Corporation."

 

 

[HeresyValue]

I love reading the willful blindness and ignorance of shareholders when management steals from shareholders. Thanks guys! Gave me a good laugh.

 

Okay, so obviously Heresy struggles to contain his ego.  But I was originally drawn to his blog because he shared an interest in Hyduke Energy, which was a perennially under-performing energy services company in Alberta that traded well below tangible book.  It has since undergone a management makeover and I am very impressed with the new team. Look at the insider action on Hyduke since the management change, and read the Outlook section from their Q3 results.  The comparison with Macro (and many other companies in the patch) is pretty astonishing, in my opinion.  It's also interesting how well Hyduke's price has held up even with the oil price meltdown, and even with less-than-stellar operating metrics. 

 

http://finance.yahoo.com/news/hyduke-announces-third-quarter-fiscal-065700133.html

 

I've really been learning a lesson this year as regards good management being #1 priority.

 

Precisely. I've been a substantial shareholder of macro in the past (and probably sold my shares to some of you bag holders) but so much of what I noted earlier re: shareholder attitudes here demonstrate an incredible ignorance for how certain management behaviours in the patch do correlate extremely well with share price performance long term.

 

This thread gave me a genuine laugh at the ridiculousness of some attitudes here. You may not like how I write less than delicately while in a massage parlour but your hurt feelings are the last of my considerations. Macro will probanly do very well. But that doesn't mean you will.

[yadayada]

Why would insiders who own a third of the stock shoot htemselve in the foot here... They would destroy potentially a hundred million$ + in value? Unless they are morons, then I could see your point.

[doc75]

You may not like how I write less than delicately while in a massage parlour but your hurt feelings are the last of my considerations.

 

Now *that's* a joke.

[Patmo]

This thread gave me a genuine laugh at the ridiculousness of some attitudes here.

You're one to talk about attitude, talking like a COD-playing 12 year old on the yahoo forums. If you have nothing of value to bring to the table, go back to where you belong. This forum will manage to survive without your amazing contributions.

 

You may not like how I write less than delicately while in a massage parlour but your hurt feelings are the last of my considerations.

It's nice that you feel the urge to let us know where you are while doing your shitposts, it's important for us to know that you need to pay for people to touch you. And what are your considerations when making these shitposts? Stroking your own tiny dick? Because that's all you managed to do so far.

[gitawa]

I love reading the willful blindness and ignorance of shareholders when management steals from shareholders. Thanks guys! Gave me a good laugh.

 

Okay, so obviously Heresy struggles to contain his ego.  But I was originally drawn to his blog because he shared an interest in Hyduke Energy, which was a perennially under-performing energy services company in Alberta that traded well below tangible book.  It has since undergone a management makeover and I am very impressed with the new team. Look at the insider action on Hyduke since the management change, and read the Outlook section from their Q3 results.  The comparison with Macro (and many other companies in the patch) is pretty astonishing, in my opinion.  It's also interesting how well Hyduke's price has held up even with the oil price meltdown, and even with less-than-stellar operating metrics. 

 

http://finance.yahoo.com/news/hyduke-announces-third-quarter-fiscal-065700133.html

 

I've really been learning a lesson this year as regards good management being #1 priority.

 

Precisely. I've been a substantial shareholder of macro in the past (and probably sold my shares to some of you bag holders) but so much of what I noted earlier re: shareholder attitudes here demonstrate an incredible ignorance for how certain management behaviours in the patch do correlate extremely well with share price performance long term.

 

This thread gave me a genuine laugh at the ridiculousness of some attitudes here. You may not like how I write less than delicately while in a massage parlour but your hurt feelings are the last of my considerations. Macro will probanly do very well. But that doesn't mean you will.

 

Interesting. Care to share with us the culture of management in that area? Seeing what can in Chinese companies, if they are remotely similar, I would say your views are 100% justified.

[doc75]

Why would insiders who own a third of the stock shoot htemselve in the foot here... They would destroy potentially a hundred million$ + in value? Unless they are morons, then I could see your point.

 

I think you have to be careful with this idea that insider ownership trumps all else.

 

Above all else, you're assuming that management knows how to *avoid* shooting themselves in the foot.  Macro's share price went from 0.10 in 2010 to $7 in 2013.  Was that crazy increase due to incredible management?  I don't think so.  What evidence do we have that Frank Miles is a really talented operator? 

 

I'm not saying he has no idea what he's doing, but it's far from clear he knows how to scale the business prudently, particularly as the market turns.  The margin compression of late is being treated as a one-time thing, whereas I see it as the standard failing of companies that have their eye more on growth than value.  Empire building is risky business, particularly for small shareholders who aren't getting paid a large salary or receiving lower-priced options or interest on preferreds as the empire gets built. 

 

Compounding that, the company continues to operate in the typical Venture micro-cap way, with lots of related-party transactions etc.

 

 

[jwfm1985]

Picked up some more around 2.36. Not expecting much out this quarters results, but this price is too good to pass up. We're trading well below liquidation value now, company is cash flow positive; there is a fair bit of downside protection. Not sure who mentioned Aveda earlier, but pretty compelling value there as well (with better management).

 

What are you expecting in terms of quarterly results? As per guidance, there's going to be a huge YOY drop in revenue; around $33m this year compared to $60m last year. I expect an improvement in margins over Q2 but I think it's overly optimistic to assume they'll crank back up to 20%+.  Despite the depressed share price, my worry is that the market won't have much patience in this uncertain oil-price environment. (So even substantial margin improvement will be greeted with doubt that it will continue.)

 

As for liquidation value, I assume you're talking into account the valuation management put forward for $30m above book on their equipment?  How much faith do you put in that number?  What discount do you apply to PP&E when you calculate liquidation value?  I'm a pessimist and always give it 30-50% haircut depending on my naive view of asset liquidity (fire sale effect, plus leakage due to "transaction costs"). 

 

I'd love to buy a bunch of this company. It looks so cheap!  Just haven't been able to pull the trigger.  Things like this in the MD&A don't help:

 

"The Company’s legal counsel, Bull, Housser & Tupper LLP bills the Company for legal services and this

includes activities related to Mr. William McFetridge, a partner in Bull, Housser & Tupper LLP, who is a

Director of the Company. During the six months ended June 30, 2014, Bull, Housser & Tupper LLP

billed $391,000 (six months ended June 30, 2013- $209,000) (not including disbursements and taxes) to

the Company and its subsidiaries and were based on the agreed terms between the parties. At June 30,

2014 the Company had recorded $311,000 (June 30, 2013 - $45,000) in accounts payable to Bull,

Housser & Tupper LLP.

 

During the six month period ended June 30, 2014, the Company engaged The Commercial Capital

Corporation to assist in evaluating ongoing financial requirements and other various opportunities. The

Company was charged $60,000 as at June 30, 2014 (June 30, 2013 - $nil). At June 30, 2014, the

Company had recorded $nil balance (June 30, 2013 - $nil) in accounts payable. Mr. Wayne Albo, Chair

of the Company’s Audit Committee and member of its Board of Directors is also the Chairman of The

Commercial Capital Corporation."

 

Big YoY drop in Q3 but it's due to project delays and backlog, so Q4 should make up some ground. Would expect about $230M top line for the year, with around $25-28M in EBITDA - if you believe that, which obviously some don't, we're at ~3.5x EBITDA in a depressed year with 2015 looking solid. No, my BV calc does not include the higher "appraised" value, it is based on book value. I do believe the equipment is worth more than book, but prefer to play it safe.

[Travis Wiedower]

Is it just for me or do others also have poblems accessing their website?

 

Did they change their site? I found this http://www.macroindustries.ca/

 

I messaged a contact listed on the macroindustries.ca site and he said macroenterprises.ca is under construction and will be back up in the near future.

[Laxputs]

I don't think it's very practical investing to worry about the worst case scenario or monsters under the bed. I'm just trying to protect the downside, and then look at what is reasonably likely to happen with their revenues and earnings. 

 

Protect the downside: By cash flows: If they only did 1/2 their revenue of years past with similar margins and managed to get 10x on that NI at some point, it's close to today's share price. Around 1/2 of their revenue is from recurring/integrity work.  But I think the idea of no new projects is ridiculous. Or by assets: They trade below book value and even further below independently appraised assets. They are almost net-debt free.

 

So what's their reasonable revenue/earnings future:

 

I assume the 8mm loss on the single project was a one time event. I don't have any reason to think that would be their strategy going forward and management has guided to about 25% GM (which is inline with historical GM).  So if they do 220m revenue this year and the market gives the credit for a pro-forma number (that TTM should be appraised on normalized margins and the flub is overlooked after they show a good couple of next quarters), the IRR is extremely large.

 

If the market wants to see a full year of normalized margins and values them at TTM earnings in April of 2016, I still show a very large IRR.

 

I'm using realistic/historical numbers (ex-flub) and not giving them credit for the 34% revenue growth over the past 5 years and irrespective of a possible LNG boom. That is all upside.

 

I'd prefer they didn't do that small dilution but it doesn't affect my reasonable expectation of business going forward.

[HeresyValue]

Why would insiders who own a third of the stock shoot htemselve in the foot here... They would destroy potentially a hundred million$ + in value? Unless they are morons, then I could see your point.

 

They aren't shooting themselves in the foot. They just want to shoot yours. The CEOs holding is for him to maintain control and do as he pleases, blocking any attempt to lower the absolutely ridiculous salaries that he and his execs earn while issuing equity to themselves when the shares are cheap and cashing in on the other end. If you go in wilfully blind, then good luck.

 

The business is cheap, but without some form of protecting activist far too much value will accrue to insiders and not to shareholders, unless you intend on cashing in on a greater fool, which, judging by this thread, may not be a bad strategy. That also doesn't mean there isn't value below their self assessed liquidation value, value which would be incredible were there to be some form of successful protecting activism.

 

Re: last post. Lol. I'd be angry too if I bought my shares at $7 in a pump and dump. Emotions run high when the tables run red.