Energy Stock News: Q1 2018 has Been Quite a Year for Enterprise Group; (TSX: $E.TO); Debt Free, Contracts, Asset Sales and the Shares up YTD 40%
Oh yes, the Company is looking aggressively for accretive acquisitions
Read the full news at http://www.investorideas.com/CO/TSXE/news/2018/03281Q12018.asp
About 60 years ago, the industrial equipment rental business was born. Growth was slow, but as infrastructure projects grew and costs rose, renting made economic sense and it the sector has been on a decent growth path ever since.
With the US infrastructure mess rattling the Governments of North America with more and more urgency, why own when you can rent?
Infrastructure: Thanks for the Memories. And the Cash.
On March 6th, 2018, Enterprise Group (E: TSX) announced a non-binding LOI for the sale of the assets of its trenchless solutions infrastructure business unit, Calgary Tunnelling & Horizontal Augering ("CTHA"), to a private arm's length purchaser for $20.6 million.
The tax-free deal closed March 26,2018. Enterprise's corporate structure allowed the utilization of tax losses to offset the gain on this transaction.
The transaction comes on the heels of the Company's securing an impressive $9.1 million equipment and supply contract in January.
"While the business landscape has and continues to improve, we are maintaining our posture of rationalizing costs and enhancing efficiencies," stated Des O'Kell. "Doubling our Q4 2017 EPS over the same period 2016($0.02 versus ($0.18) and showing an unusual increase (235%) in Q4 net income to $1.094m. We look forward to a very active and profitable 2018."
As well, as a result of the transaction E's book value rises 10% to $1.01.
Infrastructure is Dead, Long Live Infrastructure.
Enterprise was, until now, a mixture of infrastructure and industrial rental subsidiaries in Western Canada. With the sale of infrastructure subsidiary CT Underground, Enterprise is moving to grow into a leading and pure rental play: Having dumped its debt and set the Company on an aggressive growth path by organic means and complementary acquisitions.
And after having been cashflow positive throughout the resource downturn and returning to profitability Q3 2017, the Company continues to execute on its growth plan.
Trying to get a standard annual growth rate for aspects of the industrial equipment rental market is difficult. Most figures include all rentals (TV's, party plates, etc.) as well as the gear necessary to put together an entire resource camp in the arctic. As well, the growth is heavily tied to economics, commodity prices etc., further mitigating CAGR precision.
Becoming a Profitable Enterprise. Summary of Recent Metrics:
Q4 2017 revenue $10.6m versus Q4 2016 at $8.3m
EBITDA Q4 2017 $2.5m versus Q4 2016 $1.8m
Net Income Q4 2017 $1m versus Q4 2016 loss ($9.9m)
EPS Q4 2017 $0.02 versus Q4 2016 loss ($0.18)
Enterprise bought CT in 2013 for $12 million. The company billed out approximately $60 million in 4.5 years. And then sold it for $20.6 million.
Not dissimilar to the deal Enterprise did with TC Backhoe in 2016.
Some other key CTHA sale benefits:
Payroll shrinks by 60 field and office employees
On the hunt for acquisitions
$25 million credit line available
$15 million acquisition credit line offered.
The key takeaway here is that in what was arguably the worst market for resource stocks of all stripes from 2015 to about a month ago, Enterprise spent the time streamlining for growth instead of worrying about the if, as and when's.
Depending what you read, the industrial rental market has a CAGR of between 4 to 9 percent. With Trump looking for any win, vastly increased infrastructure spending will likely be his legacy.
And a lot of rented equipment.
Why do Companies Rent Industrial Equipment?
Capital Release: In times where they have to demonstrate high levels of profit compared to invested capital, contractors are increasingly eager to rent equipment, as it allows them to minimize the size of their equipment fleet. Less immobilized money allows for improved cost control, lower maintenance costs, as well as for a reduction in transport fleets. Renting equipment with operators even provides for optimizing staff costs.
The range of new equipment available: Some rental companies have fleet inventories reaching up to the hundreds of thousands of pieces of equipment while others are specialized only in a range of particular products. They can thus supply the most comprehensive range of state-of-the-art equipment - with or without qualified operators - as and when contractors and customers/customers need it.
Maintenance, compliance with standards and regulations: Rental companies bear the responsibility for ensuring the equipment they rent out complies with all applicable laws, performing a safety check before delivery. Routine maintenance and major repairs are typically handled by the rental company, saving the renter the expense of having a maintenance crew on staff. Safety checks are performed before each delivery.
Now that the CT sale is buttoned down, Enterprise management will look to identify -2 maybe 3--rental acquisitions.
Oh, There's More.
For 2020 the current forecast is for a more robust 5.3 percent growth in equipment with projected rental revenue in Canada to reach $5.849 billion.
Of course, that's not all, as the Company has a reputation for customizing and indeed manufacturing specialty items for customers. These proprietary products eventually find their way into the rental pool.
As a result, Enterprise's growing IP portfolio currently stands at 15 patents. There is also a technical aspect to the Company that will likely get fleshed out later this year.
Management has signaled that there will be more completed initiatives in 2018. Given what has happened so far this year-the shares up YTD 40% (vs the S&P up 4.22%) getting to know Enterprise would likely be worth your immediate attention.
Btw, that 40% share price rise was actually pre-the CT sale.
Hell, it's only March.
For questions or additional information, please contact:
Leonard Jaroszuk, President & CEO, or
Desmond O'Kell, Senior Vice-President
Desmond O'Kell, Senior Vice-President
Forward Looking Information
Certain statements contained in this news release constitute forward-looking information. These statements relate to future events or the Company's future performance. The use of any of the words "could", "expect", "believe", "will", "projected", "estimated" and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and are based on the Company's current belief or assumptions as to the outcome and timing of such future events. In particular, this news release contains forward looking information relating to the use of proceeds from the CTHA transaction and post-closing adjustments relating to such transaction. These forward-looking statements are based on assumptions and are subject to numerous risks and uncertainties, certain of which are beyond the Company's control, including reliance on contractual arrangements with third parties, general economic conditions, industry conditions and competitive factors. Actual future results may differ materially. The Company's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. The Company disclaims any intention or obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.
Enterprise Group, Inc. (TSX: E)
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