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
780-418-4400
contact@enterprisegrp.ca
Desmond O'Kell, Senior Vice-President
780-418-4400
contact@enterprisegrp.ca
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.
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