MCR.V - Macro Enterprises

[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.

 

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.

 

These guys do pretty well for themselves, but in their defence I must say that $692k a year all-in compensation for the CEO of a company doing $250m revenue and $40m earnings isn't even close to "ridiculous" in the realm of small cap excess.  Particularly when said CEO has enough control to bonus himself to the moon. 

A $0.10 hit to the stock means losing more than a year of his salary.

 

On the salary issue:  The management circular indicates that the CEO was paid $292,510 in base salary, with $400,000 in the category of "all other compensation".  This explicitly seems to exclude equity-based awards, non-equity incentive plan compensation, and pension value.  So what is it?

 

 

 

 

 

 

[Travis Wiedower]

Heresy has very valid points that are worth thinking about. I think the dilution is a bigger deal than most in this thread but it's not a deal breaker (yet). There's no such thing as a perfect investment and I'm confident "non-perfect management" is way more than priced into this stock. They could have 50M shares outstanding and the stock would still be undervalued.

 

Only thing I really disagreed with Heresy on is the exec salaries being egregious. Total 2013 compensation for the CEO and CFO was 2.8% of operating income. Obviously that percentage will be higher in 2014 but that's not even in the ballpark of the worst ones I've seen.

[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.

 

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.

This makes no sense at all. CEO is pulling less then a million$. Why on earth would he destroy potentially a hundred million$ in value for himself? For example, if he made some bad investment with the cash flows. He could have paid out a dividend of like 20 million and he would get over 6 million$.... That is several times his year salary. So it makes no sense to 'enrich himself' at his own cost. Unless you are talking about outright fraud here where he overpays a friends company 10's of millions for equipment. But that seems unlikely.

 

Now if he was raking in 15 million$ a year, I would agree with you. But that is not the case here. He can clearly create more value with less headache at this point by just creating value for shareholders (himself). He will end up much richer. If the stock goes to be worth 8x earnings at 35 million$ inearnings, he would be worth almost a hundred million$.

 

Even if he paid himself 10 million$ a year, he would still have to do this for another 6-7 years to break even vs just creating value for shareholders. Let alone at just around 1 million$.

[Patmo]

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.

This makes no sense at all. CEO is pulling less then a million$. Why on earth would he destroy potentially a hundred million$ in value for himself? For example, if he made some bad investment with the cash flows. He could have paid out a dividend of like 20 million and he would get over 6 million$.... That is several times his year salary. So it makes no sense to 'enrich himself' at his own cost. Unless you are talking about outright fraud here where he overpays a friends company 10's of millions for equipment. But that seems unlikely.

 

Now if he was raking in 15 million$ a year, I would agree with you. But that is not the case here. He can clearly create more value with less headache at this point by just creating value for shareholders (himself). He will end up much richer. If the stock goes to be worth 8x earnings at 35 million$ inearnings, he would be worth almost a hundred million$.

 

Even if he paid himself 10 million$ a year, he would still have to do this for another 6-7 years to break even vs just creating value for shareholders. Let alone at just around 1 million$.

 

Marshmellows in suits like him are the reason this thing is so cheap now. Classic overreaction to so-so news. Maybe he forgot that for these options to even be AT the money, the stock needs to go up 45% from here.

 

Let's say I want to arbitrarily sell my shares at $8. Let's calculate what EV/ttm normalized EBIT would be if shares were selling at this price today, including full dilution of ITM options and preferreds. Because remember kids, this grant is not ITM yet. Actually you know what, let's factor in an additional FIVES GRANTS of the same kind, just to be able to say we are going full-blown conservative.

 

EV = shares out (30.15915*8)+ current grant (1.355*[8-3.35]) + 5x grant ([5*1.355]*[8-3.35] + other current options (0.366665*[8-.34]) + convertible preferred ([4.464*.66667]*[8-1.5])+ LT debt (10.58) - cash (8.59) = 303.22mil

 

normalized EBIT= (ttm revs 238.93 * normalized margin 20%) -10mil maintenance capex + 7.96 ttm depreciation + .292 preferred divs saved on issuance = 46.03

 

$8ps EV/normalized ttm EBIT = 303.22/46.03= 6.59

 

So yeah, there you have it. The price I want to SELL my shares at is the kind of price suckers like my pal the heretic pays for his companies. I'm not done buying.

 

 

[Patmo]

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.

This makes no sense at all. CEO is pulling less then a million$. Why on earth would he destroy potentially a hundred million$ in value for himself? For example, if he made some bad investment with the cash flows. He could have paid out a dividend of like 20 million and he would get over 6 million$.... That is several times his year salary. So it makes no sense to 'enrich himself' at his own cost. Unless you are talking about outright fraud here where he overpays a friends company 10's of millions for equipment. But that seems unlikely.

 

Now if he was raking in 15 million$ a year, I would agree with you. But that is not the case here. He can clearly create more value with less headache at this point by just creating value for shareholders (himself). He will end up much richer. If the stock goes to be worth 8x earnings at 35 million$ inearnings, he would be worth almost a hundred million$.

 

Even if he paid himself 10 million$ a year, he would still have to do this for another 6-7 years to break even vs just creating value for shareholders. Let alone at just around 1 million$.

 

Marshmellows in suits like him are the reason this thing is so cheap now. Classic overreaction to so-so news. Maybe he forgot that for these options to even be AT the money, the stock needs to go up 45% from here.

 

Let's say I want to arbitrarily sell my shares at $8. Let's calculate what EV/ttm normalized EBIT would be if shares were selling at this price today, including full dilution of ITM options and preferreds. Because remember kids, this grant is not ITM yet. Actually you know what, let's factor in an additional FIVES GRANTS of the same kind, just to be able to say we are going full-blown conservative.

 

EV = shares out (30.15915*8)+ current grant (1.355*[8-3.35]) + 5x grant ([5*1.355]*[8-3.35] + other current options (0.366665*[8-.34]) + convertible preferred ([4.464*.66667]*[8-1.5])+ LT debt (10.58) - cash (8.59) = 303.22mil

 

normalized EBIT= (ttm revs 238.93 * normalized margin 20%) -10mil maintenance capex + 7.96 ttm depreciation + .292 preferred divs saved on issuance = 46.03

 

$8ps EV/normalized ttm EBIT = 303.22/46.03= 6.59

 

So yeah, there you have it. The price I want to SELL my shares at is the kind of price suckers like my pal the heretic pays for his companies. I'm not done buying.

 

Not convinced yet? Make it TEN grants of the same kind. $8ps EV / ttm normalized EBIT = 7.27.

 

Just how many option grants do I need to go over $8ps EV/ttmEBIT 8???? Turns out the answer is 16. Actually, it's 16 times PLUS the current grant. So much for small cap excess.

[investor-man]

Don't feed the troll, man

[Fat Pitch]

Don't feed the troll, man

 

Haha that's one hungry troll.

 

He has a point. If you bought this at $7, you were betting on a rosy picture for a company operating in a cyclical industry. If you are buying this around $2-3 then you are just betting that the CEO isn't brain dead and doesn't do anything too stupid.

 

I hope the CEO realizes there's much more upside to him personally if he runs an efficient operation and treats all shareholders alike. I rather own a small piece of a company where it fetches a market multiple than a controlling stake where it's only worth liquidation value of the equipment in the yard because you have a bad reputation/questionable ethics.

 

[rukawa]

I feel like procrastinating on this investment since I don't think oil prices are going up for at least 1 year or more and all these oil service companies will be taken to the woodshed repeatedly over the coming year.

[doc75]

I feel like procrastinating on this investment since I don't think oil prices are going up for at least 1 year or more and all these oil service companies will be taken to the woodshed repeatedly over the coming year.

 

I have similar feelings.  But the flip-side is that oil service companies like Macro make a bunch of recurring revenue from ongoing projects and maintenance contracts.  Also, new production won't stop just because oil prices go down.

 

So the *growth* of these companies will plummet from cycle highs, and margins will decrease the various companies compete for pieces of a smaller pie... but I think this has already been baked into the price to a large extent.  I'd put a lot of money in Macro at this price if I had a lot of faith in management.

 

[Laxputs]

Earnings out.

 

http://www.stockhouse.com/news/press-releases/2014/11/27/macro-enterprises-inc-announces-2014-third-quarter-results

[Travis Wiedower]

Revenue drop was bigger than I hoped but at least margins are back to the low 20% range that management stated as their long-term goal.

 

On a more positive note, it seems the LNG projects are moving along nicely: http://online.wsj.com/articles/petronas-led-gas-project-granted-provincial-environmental-permit-1416970448

[Laxputs]

The revenue drop is disappointing. The 22% GM is nice.  They are on track to do 90% of 2013 revenue or around 190m revenue for 2014.

 

It's a really interesting company to value. There is not much downside given they are almost net debt free and their assets are close to their m-cap.

 

If the market gives them credit for pro-forma numbers (i.e. disregard the large Fort MacMurray flub) and back to (the low end) of historical GM, (22%+), I don't see how this doesn't re-rate. I'm guessing the market wants to see the revenue become steady.

 

Even if revenue were to drop to 2012 numbers (150m from the ~200m 2013-2014), the company is very undervalued. 8x EPS on 150m revenue I have 3$/share. That to me is a the low-end case. That supposes revenue crashes 30%. And they are talking about "several large projects for mid 2015". So I don't think revenue will be anywhere near there. That low case is 22% IRR if it was realized by March 2016.

 

2012 150m Revenue they did 30.5m EBITDA. EV today of 87m. So under 3x EV/EBITDA for the LOW-END numbers.

 

Supposing they do 190m Revenue at 22% GM and 10x EPS this time, realized my March 2016, I get 110% IRR from today's price. I would call that a MID-CASE scenario given they did 25/26% GM 2012/2013 and there is a chance of "large 2015 projects" boosting revenue.

 

My numbers could be off, but if not, this looks realistic to me.

 

Nobody wants to be in this sector right now. But the company is making money and the long-term outlook favours them. Downside seems covered.

 

Thoughts?

 

CC 8am PST tomorrow. Can anybody ask questions? Ill ask about 2015 projections. What % of revenue going forward is maintenance/recurring. How do margins compare for integrity work vs new projects. Any plans to dilute shareholders. 8m capex on new building just to house equipment? (doesn't that sound like a lot?!). Anything else?

[Patmo]

The revenue drop is disappointing. The 22% GM is nice.  They are on track to do 90% of 2013 revenue or around 190m revenue for 2014.

 

It's a really interesting company to value. There is not much downside given they are almost net debt free and their assets are close to their m-cap.

 

If the market gives them credit for pro-forma numbers (i.e. disregard the large Fort MacMurray flub) and back to (the low end) of historical GM, (22%+), I don't see how this doesn't re-rate. I'm guessing the market wants to see the revenue become steady.

 

Even if revenue were to drop to 2012 numbers (150m from the ~200m 2013-2014), the company is very undervalued. 8x EPS on 150m revenue I have 3$/share. That to me is a the low-end case. That supposes revenue crashes 30%. And they are talking about "several large projects for mid 2015". So I don't think revenue will be anywhere near there. That low case is 22% IRR if it was realized by March 2016.

 

2012 150m Revenue they did 30.5m EBITDA. EV today of 87m. So under 3x EV/EBITDA for the LOW-END numbers.

 

Supposing they do 190m Revenue at 22% GM and 10x EPS this time, realized my March 2016, I get 110% IRR from today's price. I would call that a MID-CASE scenario given they did 25/26% GM 2012/2013 and there is a chance of "large 2015 projects" boosting revenue.

 

My numbers could be off, but if not, this looks realistic to me.

 

Nobody wants to be in this sector right now. But the company is making money and the long-term outlook favours them. Downside seems covered.

 

Thoughts?

 

CC 8am PST tomorrow. Can anybody ask questions? Ill ask about 2015 projections. What % of revenue going forward is maintenance/recurring. How do margins compare for integrity work vs new projects. Any plans to dilute shareholders. 8m capex on new building just to house equipment? (doesn't that sound like a lot?!). Anything else?

 

I would rephrase the "plans to dilute shareholders" to ask what purpose the option grant served, who the options went to, or something along those lines. What meaningful answer could the guy give if you ask "Any plans to dilute shareholders".

 

I'm interested in the %of revenue is recurring question as well.

[investor-man]

Not terribly surprised with the revenue drop. I'd imagine over the next 7 months companies in the energy sector are going to be cautious with money. Macro is a good company to own because they are in good financial shape, and once OPEC cuts production, which I belie they will,  their business will pick up.

[doc75]

Not terribly surprised with the revenue drop. I'd imagine over the next 7 months companies in the energy sector are going to be cautious with money. Macro is a good company to own because they are in good financial shape, and once OPEC cuts production, which I belie they will,  their business will pick up.

 

Isn't the revenue actually a tiny bit ahead of their guidance?  I was expecting $33m based on what they said last Q and was happy to see it wasn't less.

 

 

[Laxputs]

They mentioned they are in a net cash position now having received a lot of their receivables since the financials came out.

 

They said something about some pipeline conversations stopping.. but I missed the exact quote. Anybody get that? And they still mention "large non-LNG related projects" in their MD&A for mid 2015.

 

[investor-man]

Thanks for posting. Any more notes would be appreciated. I'm out of town with family and couldn't listen. Anybody know if the call will be posted online?

[Travis Wiedower]

I'm sure it will be, their other ones were. Hope someone asked about the option grant. I was going to but I'm traveling with family all day.

[yadayada]

So they will have a net cash position of like 30-40m$? And market cap is 70m$ fully dilluted? That is ridicilous. If they would liquidate for like a 30% discount on all their assets you would get 45m$... And that would be pretty pessimistic as most of their receivables will be cash by next quarter.

 

Basicly the market thinks they cannot make another 25m$ in the next 10 years based on lower oil and one bad project? That is always the scary thing with really really cheap stocks. Are people selling below 3$ really that stupid? Or are they just the ones who were in this from the beginning.

 

Market is mostly discounting maintenance income here, and assuming they will probably not get sizable new projects?

[Laxputs]

I'm not saying net cash is that high. They got some of their receivables. They have some payables and capex plans. But net-cash position confirmed by mgmt.

 

It seems really cheap with downside covered, yup. I would not be surprised if they did 2015 revenue of 130m or 250m. Seems like their business is just that lumpy given the bid process for new projects.

[investor-man]

They said they had collected 26m in receivables since quarter end. The market cap is down to $55m. This is crazy. They could basically shut down for a year and be fine.  It would not surprise me if the entirety of 2015 was a terrible year for them, but eventually the price of oil has to come back up, and business will pick up again.

[Laxputs]

The EV is somewhere around 47-55m based on the info they gave on receivables collected. They state they received 26m after the Q3 financials came out and that they are in a net cash position. With plans to spend a couple million on the new office facility by year end.

 

I don't understand that market's thought process on the company valuation. They are bidding on non-pipeline work. They do integrity projects. And there is going to be some amount of activity in pipeline construction in 2015. There is a huge option being free-roled on some major projects going through. That of course is not needed for dramatic upside from here.

 

I see so little downside here.

 

Q3 CC: http://www.macroenterprises.ca/images/documents/webcasts/Macro-Enterprises-November-28th-2014-Q3.mp3

[Patmo]

The EV is somewhere around 47-55m based on the info they gave on receivables collected. They state they received 26m after the Q3 financials came out and that they are in a net cash position. With plans to spend a couple million on the new office facility by year end.

 

I don't understand that market's thought process on the company valuation. They are bidding on non-pipeline work. They do integrity projects. And there is going to be some amount of activity in pipeline construction in 2015. There is a huge option being free-roled on some major projects going through. That of course is not needed for dramatic upside from here.

 

I see so little downside here.

 

Q3 CC: http://www.macroenterprises.ca/images/documents/webcasts/Macro-Enterprises-November-28th-2014-Q3.mp3

 

With share price dumping so hard I started feeling uneasy, what if I got overexcited and made a valuation mistake? So I tried looking at it every angle possible. Various historical cycle valuation, a bunch of future projections, you name it. Short of the sky literally falling, there is no way to lose money at current share price. It appears like there is still pricing risk in the short term, there's a chance we could see it drop to $1ps or even lower. I'm buying MANY more shares if it gets to that point.

[doc75]

Short of the sky literally falling, there is no way to lose money at current share price.

 

With all due respect - on the Venture, there's always a way to lose money.  My biggest fear with Macro is that they'll blow themselves up chasing big projects, particularly in a competitive environment. 

 

A few thoughts on the share price:

 

- This was a 40 cent stock in 2012.  The rise to $7 was meteoric.  I'm always amazed how far these parabolic stocks can crash.

- There haven't been any insider purchases despite the stock tanking, so there's no evidence to suggest they think the company is as cheap as you do.

- Management was pretty blunt on the CC about projects being delayed.  They even dialled back some positive-sounding news in the Q release. (They said they were in discussions regarding a contract. Discussions have since stopped.)  So I'd guess lots of players are looking at this as "dead money", at best.

- If we get some bad headline news on the LNG front,  everything in this space will drop substantially from already depressed levels.

 

 

 

 

 

 

[Patmo]

Short of the sky literally falling, there is no way to lose money at current share price.

 

With all due respect - on the Venture, there's always a way to lose money.  My biggest fear with Macro is that they'll blow themselves up chasing big projects, particularly in a competitive environment. 

 

A few thoughts on the share price:

 

- This was a 40 cent stock in 2012.  The rise to $7 was meteoric.  I'm always amazed how far these parabolic stocks can crash.

- There haven't been any insider purchases despite the stock tanking, so there's no evidence to suggest they think the company is as cheap as you do.

- Management was pretty blunt on the CC about projects being delayed.  They even dialled back some positive-sounding news in the Q release. (They said they were in discussions regarding a contract. Discussions have since stopped.)  So I'd guess lots of players are looking at this as "dead money", at best.

- If we get some bad headline news on the LNG front,  everything in this space will drop substantially from already depressed levels.

 

I was going to login to mention that there is actually one way to lose money. I don't think it has to do with chasing big projects or anything on the operational side, mgmt is solid on that. However they have shown selfish tendencies on the financial side in the past. Nothing worth raising the pitchforks over, but certainly not worth applaud either. If the idiots keep selling off hard enough, my boy Frank and his pals could be tempted to buy out & go private for pennies on the dollar. Not a favorable end game for the reasonable investor.

 

This stock is definitely NOT worth only 40 cents a piece. Don't forget there's a difference between price and value. It's trading at literally half net assets right now. There's nothing I can do if people are this insane but wait and/or buy more.