Some Thoughts on Profits in the Oil Patch, Part 2
Sometimes you just can't get much respect. One of our advertisers just reported earnings of $2.1 million for the 2nd quarter of 2007 fiscal year, with quarterly revenue of $18.8 million, up 32% YOY. The stock went down on the news.
Stocks do that and sometimes it makes sense. But in the case of Enterprise Oilfield Group, (E-V) the stock is selling for about 1.5 times earnings. I don't expect that to last for long, this stock is going a lot higher very quickly.
Enterprise is an oilfield service company. They get paid if the companies they work with strike oil or not. If you believe in peak oil, you want to be invested in energy stocks and the safest energy stocks to be investing in are the service stocks. They always make money.
Enterprise operates a fleet of over 240 trucks and pieces of heavy construction equipment in Northern and Central Alberta worth over $16 million. And this is a company with a tiny $45 million dollar market cap.
The company specializes in pipeline construction, oilfield maintenance, directional drilling and other utility services. Their largest projects are in the construction of pipelines up to 12" diameter and are evenly divided between oil and natural gas markets. Enterprise has both the people and the equipment to conduct a project from start to finish.
The company's business model is to grow by acquiring and operating small to medium size specialized energy and utility service companies throughout Northern and Central Alberta.
On May 4th, Enterprise closed an acquisition of T.C. Backhoe and Directional Drilling (Rolls off your tongue, doesn't it?) for $12 million in cash and shares and another $1.94 million for equipment and additional inventory.
T.C.'s audited financials for 2006 showed revenue of $11.9 million and EBITDA of $5.99 million. Enterprise is paying just a tad bit over 2 times earnings. T.C is a 30 year-old company and gets 80% of its income from utility companies and 20% from the energy sector. T.C specializes in directional drilling and installation of underground power, communications and natural gas lines.
Enterprise intends to continue growth of T.C. in the core utility market and to expand the work done in the energy sector. It is viewed as a key move in the company's business development. The acquisition will immediately add about 40% to revenue and earnings. One day, no doubt, investors will actually give them some credit for making a giant profit.
It looks to me as if Enterprise is going to be earning something in the $.12 a share net. That's per quarter; call it $.48 for the year. With the stock selling for $.79, I'd say that is one hell of a deal.
I met with management in Vancouver at the resource show in January. They were the best group of management I met with at the show and I really liked some of the companies I saw. This stock is as close to a slam-dunk as you will ever find. It has management, cash flow, profit (What's that? Some of you are saying.) It has a great business model, and it's in the most attractive area I can imagine to be in today.
I've very nervous about the general market. For the first time in years, I fear a Chinese crash. It's no big deal, they will come back in 18 months or so but their market is going whacko and it's going to cost someone a lot of money. If you have money in base metals shares, consider taking some money off the table over the next month. I am going to get real nervous after quarterly buying which we know will take place the end of June. July and beyond are going to bring bad things. Very very bad things.
If someone told me the whole market was going to tank tomorrow and wrote it in rock, I'd be comfortable investing in Enterprise. What's the downside? If the whole management team got eaten by a land crab tomorrow, the stock would go up. The only thing holding this puppy down is lack of visibility. And that's what I do, contribute visibility.
Enterprise is an advertiser and that makes me a little biased. We have options on the stock at $.82 and that makes me biased. We own shares and that makes me really biased. But what's the risk on a stock with a PE of 1.5. This isn't brain surgery. But do your due. It's your money, invest it wisely.
Enterprise Oilfield Group, Inc
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February 23rd, 2020
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