Pipelines key as Enterprise Group positions to service BC LN
When the long list of liquefied natural gas and oil sands projects in Western Canada eventually catches up to overseas and south-of-the-border energy demand, a host of companies that support the top producers and shippers stand to reap huge benefits.
Enterprise Group (TSE:E) operates a collection of businesses that could cash in big once economics prove LNG infrastructure construction worthwhile and regulatory barriers give way to pipelines destined to transport crude to the Gulf Coast.
Enterprise is waiting patiently to take advantage of these developments with an offering of highly specialized services for pipeline and energy firms, thanks in large part to two fairly recent acquisitions. As the name would imply, Calgary Tunnelling & Horizontal Augering, added to the company in June, clears the way for pipes to run underground, even as they cross paths with highways or train tracks. Its work is so specialized that there are only a handful of players in North America, according to vice-president Desmond O'Kell.
The flameless heat technology of another recent acquisition, Artic Therm, is important when pipeline operators are working in extreme weather conditions or expanding pipes with heat. Artic Therm, purchased a year ago for $6.5 million, has been in operation for well over a decade with its patent-protected equipment. Its best quarter yet came this year.
"We did, with our new management style and some additional capital, approximately the same amount of revenue in one quarter as they did previously in the entire year," chief financial officer Warren Cabral told Proactive Investors.
O'Kell says the Artic Therm acquisition was the beginning of Enterprise's new focus, after the company steered through the last decade's recession. "We basically came out of that downturn, took all of our divisions and righted the ship and they all became profitable," he says. "We positioned the company healthy enough that we could come back on our acquisition trail."
That trail is far from over. Enterprise is looking to augment its portfolio even further with companies that compliment the direction it's taking and pad the bottom line, without simply being a bolt-on revenue stream.
"Our bar for profitability is high," O'Kell says. "We're going to acquire businesses that have some exclusivity, that generate high-margin profitability."
The St. Albert, Alberta-based company primarily targets private, Western Canadian firms that have difficulties raising enough capital to expand their operations. In addition to that, Enterprise sees value as an important criteria: it won't spend more than 3x EBITDA on any company. And it's important to keep management with a successful track record on board for at least five years, through incentives, to ensure expertise is passed along. Enterprise allows acquired companies the freedom to do what made them successful, without imposing much in the way of head office directives.
"We don't want to dismantle their companies," says Cabral. "In fact, we want to enhance [them]."
Brand preservation is key, too. Enterprise kept the names of Calgary Tunnelling and Artic Therm, as well as utility services specialist TC Backhoe and heavy-equipment renters E-One Limited, because they have long-standing reputations in the communities they serve.
Enterprise shares have gone on a 225% run this year, and the company is determined to cement its position as a one-stop shop for energy firms. O'Kell predicts revenue in 2013 will be double the $18.5 million produced last year, as Enterprise enters its high season over the next three quarters. Calgary Tunnel's revenue hasn't yet shown up on the books, but if the $14.9 million it generated in 2012 is any indication, the sales goal is within reach.
Analysts still see upside for the stock. M Partners has a $2.05 target for the year ending 2014, while that of Beacon Securities is 85 cents for the year ending 2013. Shares have a 52-week range of 20 to 87 cents.