After financial markets closed yesterday, energy infrastructure, equipment, and services company Enterprise Group Inc. (E:TSX.V), announced financial results for the second quarter of 2022, which ended June 30, 2022.
The Enterprise Group provides specialized equipment and services to numerous Tier One resource clients in western Canada, including Suncor Energy Inc. (SU:TSX; SU:NYSE); Chevron Corp. (CVX:NYSE),ConocoPhillips (COP:NYSE), and Canada's largest natural gas producer Tourmaline Oil Corp. (TOU:TSX). Through its four primary business units, it offers turn-key modular solutions to build out camp infrastructure, including buildings, equipment, natural gas and diesel power generators, an integrated electric microgrid, flameless heating systems, communications, and stadium lighting towers.
In a conversation with the company's President and CEO Leonard Jaroszuk and Senior Vice President Desmond O'Kell, the executive management team advised that one of the company's greatest assets is its first mover advantage and capability to provide drillers with a single large natural gas fueled generator which offers the same output capacity of 15 diesel powered units.
The company launched its Evolution Power Projects division in April of this year and, at present, is the only firm able to offer specialized natural gas-based mobile power systems and related infrastructure. This equipment allows operators to eliminate the need for frequent and costly deliveries of diesel fuel to job sites in remote locations.
As legacy operations may use as much as 3,000-5,000 liters per day of highly polluting diesel fuel, the Tier One operators can make great strides in their ESG initiatives to reduce their carbon imprint, and with the price of diesel now at around CACA2/liter, can reap tremendous cost savings. Another extraordinary added benefit to producers of natural gas is that once the operations are up and running at the site, the company can fuel the equipment essentially for free with the gas it extracts directly from the ground.
The company reported in its earnings release that in Q2/22, total revenue increased by 64% year-over-year to CA$5.298 million, compared to CA$3.226 million in Q2/22. The firm stated that adjusted gross margin in Q2/22 rose by 1,231% to CA$1,610,188, compared with CA$120,950 in Q2/21, and adjusted EBITDA came in at CA$1.016 million versus a negative adjusted EBITDA of CA$394,835 in Q2/21.
The analysts commented that Fundamental has a positive view of oil prices at the moment as "it expects a prolonged period of conflict between the West and the East, as Russia accounts for 13% of global oil production."
Enterprise Group indicated that for H1/22, revenue rose by 42% to CA$12.927 million, compared to CA$9.085 million in H1/21. The company listed that during H1/22 it registered a 151% improvement in adjusted gross margin of CA$5.132 million, up from CA$2.047 million in H1/21. The firm added that adjusted EBITDA in H1/22 also increased by CA$2.975 million to CA$4.046 million, representing a 278% increase over the CA$1.076 million recorded in H1/21.
The firm advised that during H1/22 it repurchased 670,000 common shares at an average cost of CA$0.335 per share for a total cost of CA$224,510 and added that since it commenced its share buyback program about two and one-half years ago, it has purchased and canceled a total of 8,928,500 shares at an average cost of CA$0.21 per share. The company noted that the shares purchased have a carrying value of CA$12,796,837, or CA$1.43 per share.
Enterprise noted that it believes its stock remains undervalued and intends to reinvest positive cash flow from its ongoing operations to repurchase additional shares since the company now has a book value of CA$0.70 per share.
In recent years, the company has not had a lot of coverage from analysts; however, in a July 26 research note, Fundamental Research Corp.'s Head of Research Sid Rajeev, B.Tech., CFA, MBA, and Equity Analyst Alexis Cabel B.A. Econ advised that the firm had initiated coverage on the company with a "Buy" rating and estimated a "Fair Value" price of CA$1.06/share. The firm noted that Enterprise shares are currently trading at 4.3X EBITDA versus the sector average on 9.2X.
The analysts highlighted in the report that as the company has around CA$41 million in hard assets, "it currently is trading at an enterprise value of CA$31 million, which implies that its shares are trading at just 76% of hard assets." The Fundamental report listed that the company has an inventory of over 2,500 pieces of equipment, making it one of very few top one-stop providers of onsite oil field infrastructure.
The analysts commented that Fundamental has a positive view of oil prices at the moment as "it expects a prolonged period of conflict between the West and the East, as Russia accounts for 13% of global oil production."
Maund concluded that "It looks likely that the improvement in Enterprise Group's earnings will continue and become evident with the next set of quarterly results … The results are expected to generate an upside breakout, and we, therefore, stay long, and this is a good point to buy or add to positions."
The report mentioned that there are greater than 500 sites in western Canada that could potentially become users of Enterprise's natural gas-powered generators. These locations could each generate up to CA$200,000 in annual revenues, which would bring in as much as $100 million in total from that division alone.
Another independent analyst and frequent Streetwise Reports contributor Clive Maund wrote recently in an article published on August 10, 2022, that "taking a look at the one-year chart, we can immediately see how Enterprise Group is continuing to march higher in a steady uptrend and only paused to consolidate when the broad market tanked in the Spring."
Maund added that "technically, an upside breakout soon is suggested by the increasing bunching of the price and its bullishly aligned moving averages and the closing up of the bullish Ascending Triangle."
Maund noted that "even at liquidation prices, the company's assets, which are appraised twice a year, are worth CA$0.72 a share, which is much more than the current share price."
Maund concluded that "It looks likely that the improvement in Enterprise Group's earnings will continue and become evident with the next set of quarterly results … The results are expected to generate an upside breakout, and we, therefore, stay long, and this is a good point to buy or add to positions."
Enterprise Group lists in a presentation on its website that capital investments in the oil and gas sector are on the rise and are improving steadily as demand and commodity prices are increasing. Thus, the firm's outlook for the rest of FY/22 remains positive.
CEO Jaroszuk told Streetwise that the company produced excellent results in the first quarter of the year and said that historically the second quarter is the slowest period for the company and most resource companies working in northern Canada. During April and May, the annual spring thaw occurs, and much of the landscape is saturated and unsafe for navigation by large commercial vehicles. Despite these seasonal obstacles, the company was still able to turn in much better numbers in Q2/22 than in the corresponding quarter last year.
Though CEO Jaroszuk did not offer any specific forecasts; he did mention that the company remains optimistic for business in Q3/22 and Q4/22 and expects the company's performance will more closely mirror results achieved in Q1/22 rather than the Q2/22 results.
CEO Jaroszuk and SVP O'Kell commented that the company's future growth is expected to come from a combination of organic growth and, when appropriate key acquisitions. The company explained that early on, it made the right disciplined decisions to streamline its operations and is now poised to meet rising demand.
Messrs. Jaroszuk and O'Kell indicated that the company was able to increase the prices for its services as customers recognize the added value Enterprise offers. The firm stated that it implemented a 15% price increase on January 1, 2022, and a second 15% increase that went into effect on July 1, 2022. The company appears to have strong pricing power and plans to implement further increases this December.
While the world continues to push for new forms of clean energy, the demand for natural gas remains high. The company noted that though there are clearly some headwinds due to climate concerns, Canada is being pragmatic in maintaining and expanding the development and distribution of natural gas.
It is important to point out that at the present time, the oil and gas industry is still the greatest source of revenue for Canada's treasury and that the country is now building an LNG terminal in Kitimat, B.C. that when phase 2 is complete, will be capable of handling as much as 3Bcf (billion cubic feet) of natural gas per day.
Chris Temple, Editor and Publisher of The National Investor, commented, "The total turnaround in fundamentals and outlook alike for Canada's energy industry generally—and for the ongoing HUGE development project of LNG Canada particularly, which Enterprise is an integral equipment and service provider for—will by all appearances be continuing apace."
"Though its share price has more than doubled off its post-Plannedemic low, Enterprise shares are still absurdly cheap in my opinion," Temple added.
Temple advised that the Enterprise Group is now proceeding with efforts to secure an OTCQB listing in the U.S. and that, when accomplished, it will allow significant numbers of U.S. investors to establish positions in this "leading and CHEAP Canadian energy services player."
Enterprise Group is headquartered in St. Albert, Alta. Canada. The company provides services and specialized equipment rental to the energy and resources industries, primarily in Alberta and Northeastern B.C. The firm is highly focused on delivering power systems and technologies that serve to mitigate, reduce, and eliminate CO2 and greenhouse gas emissions at both its clients and its own operations.
According to the company's executive management team, Enterprise's President and CEO Leonard Jaroszuk is the largest shareholder in the company owning around 27% of the firm's outstanding shares, and another 8% of shares are owned by company directors, officers, and insiders. The firm also has one independent investor that owns about seven million shares (~14%) in the company, and the remaining 51% ownership is spread out among approximately 4,000 retail customers.
Enterprise Group Inc. shares trade on the Toronto Stock Exchange under the symbol "E" and last closed for trading at CA$0.395/share on August 11, 2022. As of the close of trading on Thursday, August 11, 2022, the company had 47,559,875 shares outstanding and a market capitalization of about CA$18.79 million (~US$14.69 million).
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CliveMaund.com Disclosures
The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.
Disclosures for Fundamental Research Corp., Enterprise Group Inc., July 26, 2022
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