Given that many of the energy service names have reported Q4 numbers and the fact that AVE.V has thoughtlessly sold off as Rig count strengthens since the new year let’s review.

To think, when they reported Q4 last year the stock was 0.62/share but yet they were generating only a fifth of the EBITDA they will put up in the coming weeks. RIDICULOUS!!!

Now is a good time to look ahead and give a quick reminder how ridiculously cheap this Hidden Gem Aveda is that Dave Werklund is keeping under wraps. Here’s my take;
 
Operating Environment
 
Rig Count averaged 743 in Q4 which was up 58% YoY and (2)% QoQ. As a response on an operational basis added additional terminals in Casper in Q2, 3rd Permian in Q3 and another in Martins Ferry in Q3 that will start contributing to revenue in this Q which will help QoQ and YoY numbers.
 
As announced in Q3, they are on 100+ hiring spree to have full fleet activation by the end of 1H of 2018 this should help margins with the reduction in 3rd party contractors and be a tailwind to asset utilization.
 
A good compare ENTREC Corporation ENT.TO has already announced Q4. Canadian revenues were flat and US revenues were up 120%!!!  Quick Reminder: 90% AVE.V Revenues come from US sources (67% TX/OLKH/LOU). I am real bullish on Marcellus region revenue growth (apox. 10% of revenues) as they add the Martins Ferry terminal. Ronnie has been real disciplined with terminal expansion only adding capacity in new locations as they get invited in by anchor clients.
 
As these oil companies smartly bail from the Cdn market, they need to get their assets down to growth basins still. I bet Ronnie was getting a lot of these calls as these companies looked to reposition assets into the new year.
 
Revenue

Looking for 52-54M in Revenues up 69% YoY and flat QoQ, should see strong growth in Marcellus and Bakken regions as these new terminals begin to get their foot in the door in new operating regions. In Q3 last year they were not even in the Marcellus play now they have 2 terminals and will generate over 10%+ of revenues from the play. WCSB revenues will be week, many of these service names in Q4 have stated that the demand is not bouncing as hard as in the US growth basins with many of them putting up flat YoY revenue from Cdn sources.
 
Currency headwinds of stronger CAD YoY of aprox. 5% may hurt revenues slightly but will moderate on a go forward basis.
 
They already disclosed October revenues of 17.7M up 95% over last October in their investor presentation so just annualizing that figure is 53.1M or 69% growth YoY…
 
Profitability

Looking for 4.8-5.2M in EBITDA up 500% YoY and 6% QoQ. We got to see the gross margin expanding again, looking for 10% (including Amort & Dep) on the expense side Q3 showed the operational discipline with SG&A down on a percentage of sales basis and an absolute basis QoQ.

Might be some one time training costs so it will be a little higher in Q4/Q1 but the resulting asset utilization increases will more than make up for it in 2018. Looking for SG&A of 9% of sales or 4.7M.
 
Valuation

With a Tangible Book Value of 0.63/share and FMV of Book Value of 1.05/share you are essentially buying $1 of assets for $0.50 cents. This is how unloved this name has got, it just boggles my mind…
 
In 2018 using 225M in revenues w expanding margins due to the 5 prongs of (1.Asset utilization improvements 2.Pricing recovery 3.Market share gains 4.Fleet activation 5.Reduction of 3rd party contractors) gives me an EBITDA estimate of 25M+.
 
In Conclusion: Buying $1.00 of assets for $0.50 cents trading at 1x EBITDA or 3x EV/EBITDA using a 60M debt figure easily leaves room for more than a doubling in share price. My 2018 target price is 1.20/share or 140% upside.
 

LONG