Enterprise Group $E.TO (4 / 5)
March 7, 2024|2023 Annual
Yesterday I was able to review one of my 2023 top picks in KITS, and this morning one of my top 2024 picks in Enterprise Group releases their annuals. It's been a good week returning from holidays.
I've reviewed Enterprise on three previous occassions, which all received four stars. I took a position after my second one, back in May in the mid forty cent range which had doubled recently and then pulled back after their interesting announcement of a 85 cent raise. I'll give some thoughts on that somewhere in here. Let's see how their full year turned out.
Balance Sheet:
Current ratio just shy of 3.5 which is extremely good and consists of $3.8M in cash, $6.7M in receivables, $2.3M in other short term assets against only $3.7M in liabilities due over the next year. An excellent start here and also much improved from Q3, when their CR was 2.1. Curiously their debt is up though to $17.65M from the $14.95M it was at at the end of Q3. So they now have an additional $3M drawn on their $30M credit facility which isn't at the sexiest rate of 10.5%. It feels odd given the amount of operational cash flow they generate.
Cash Flow:
A very impressive $13.5M generated through operations during their fiscal year, nearly 130% better than what they achieved. Generating $1.1M per month in OCF is significant given their annual revenue of $33.5M. During 2023 they took on additional net debt of $3M and took on an additional $2.25M in mortgages. They utilized the majority of this cash on an additional $15M in hard assets, mainly in land and heavy automotive and rental equipment. They also bought back about a half million of stock. Overall, they ended up with $3.8M at the end of the year, 250% more than they started the year with.
Share Capital:
- Nice float with 49.7M shares outstanding, down by 1.3M from the end of last year through stock buybacks
- 5.1M options outstanding, all ITM at 45 cents
- 46% insider ownership with nothing exciting of late to discuss on insider transactions in the open market
- NCIB is still outstanding but given the recent PP I wouldn't expect any more buybacks anytime soon
Income Statement:
The annual P&L is stellar with $33.5M of revenue which was up 25% over 2022 with the gross margin equally impressive gaining 200 basis points over last year and coming in at 42.5%. Their only cash burning bucket, General and Admin actually decreased by 19% compared to last year, so gaining $6.5M in additional revenue while spending over a half million less in G&A is exceptional management. That all results in a 171% gain in net income, which came in at $6.17M, which was over 18.4% of revenue. The only little blip is $1.9M in finance expense, up from $1.5M on their increased debt load.
In just looking at their Q4 numbers, they were 10% better than last year and 14% better QoQ with margin exceeding 50%. Their net income from Q4 alone was over $2.25M, which is more than triple the net income they achieved in Q4 last year. Truly phenominal numbers.
Overall:
It's an hour into the market day and the market seems to like these numbers, as they should. Were still trading at just 1.25 MC to Revenue, and around a 5 EBITDA/EV ratio which shows (me at least) there is still value. The PP which is yet to close is likely to hold them back somewhat as it is going to come with approximately 17% dilution. I must say I do detest that the raise is done as a LIFE offering with such a cheap 95 cent warrant. Companies raise through LIFE offerings out of weakness, not strength. Everything else here is extremely bullish but can't say I loved that news for one of my top 2024 picks. Maintains four stars with a watchful eye out for Q1 and how they manage their debt and manage the float through 2024.