| We are initiating coverage of Enterprise Group with a BUY rating and 12-month price target of $0.60. Our target is based on ~5x F2013 EPS and ~4x F2013 EBITDA. ? Enterprise is involved in four businesses, all benefiting from strong economic growth in Alberta. The original lines of work include pipeline construction and maintenance (Enterprise Energy Services), and more importantly, underground utility infrastructure work (T.C. Backhoe & Directional Drilling). The utility business is set to grow with a small acquisition closing imminently. The legacy business is being augmented by a recently launched heavy equipment rental business (E One) and a recently acquired heating rental business (Artic Therm). There is a pipeline of additional acquisition opportunities, and the Company’s near-term goal is to grow revenues to >$100 million in a profitable manner. ? We model revenue growth of 40% in 2012 and 45% in 2013, driven by the utilities division and the very accretive Artic Therm acquisition. The business has already witnessed improved operating metrics and is now solidly profitable. After a breakeven year in 2011, we forecast EPS of $0.07 in F2012 and $0.12 in F2013. ? The balance sheet is supported by a new three-year, $12.5 million credit facility. We believe current net debt stands at roughly $9.2 million, post announced acquisitions. We would expect the Company to seek additional financing sources in the coming year to execute on the growth strategy. Trading at just 3.8x F2012 EBITDA and 3.1x F2012 EPS, with significant growth forecast in F2013, we see compelling risk/reward in this name. Poor strategy |