Time for a Substantial Issuer BidIncredible undervaluation combined with a sound balance sheet would make this a very time to execute a substantial buyback for about 20% of the shares or 6 million shares in a range from $3.90 to $4.25 - would get rid of the weak holders.
After this is completed continue with the NCIB. If stupid valuation persists, buy back another 20% of the shares out next Summer. Continue until we close in on Paradigm's target of $10 below...
Onward and Upward
Investment Thesis. Macro is active in the construction and maintenance of pipeline and
compressor station projects. The company has built a significant backlog of work related to major
pipeline projects in Western Canada.
Event
Macro Enterprises (MCR) announced Q3 results that were generally in line with our
revenue and EBITDA expectations. The company reiterated its 2019 revenue guidance
and provided an updated timeline on the Trans Mountain project.
Highlights
Sustainable Margins | MCR reported Q3 revenue of $114.5mm, EBITDA of
$18.7mm and EPS of $0.24, versus our estimates of $108mm, $18.0mm and
$0.35, respectively. The difference in EPS is a result of higher depreciation and
tax rate than we had been forecasting.
Reaffirm Revenue Guidance | Revenue guidance for 2019 is now expected to
exceed $400mm. While margins are a little more difficult to forecast, management
expects Q4 margins to be reflective of the trailing 12-month average, which would
imply a gross margin of 18%.
MSA Work Falling Off | In what is expected to be a near-term event, MCR has
seen a significant reduction in MSA-related revenue in 2019. This has been a
product of several factors, including: the company’s bandwidth; reclassification of
some integrity work; increased competition on smaller projects; and decreased
spending on maintenance and integrity work by its customers. It is anticipated that
larger maintenance and integrity projects will return in 2020 and, going forward,
MCR will continue to pursue MSA work that provides attractive economics.
Permitting on Trans Mountain | MCR and its client are working to satisfy
permitting requirements on its phase of the Trans Mountain expansion. The
company is expecting to commence construction in H1/20. Construction that is
currently underway on other phases of the project should be viewed positively as
an indication the project is moving forward.
Valuation & Conclusion
MCR’s Q3 results reflect the consistency in earnings we should come to expect from
this company over the next 2–5 years. The company remains undervalued despite an
increasing level of certainty around MCR’s backlog of business. Heading into 2020,
MCR continues to actively bid on project work where it can considering its already
busy schedule and add equipment to support its increasing workload. We maintain our
Buy recommendation and $10.00 target price (5.0x EV/EBITDA based on our 2020
estimates). The decrease in our EPS estimates is a reflection of increased
depreciation and an adjustment to the tax rate.