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Tuesday, February 27, 2024

Enterprise Group (TSX: E) Added a New Partner

Enterprise Group (TSX: E), a company providing specialized equipment and services in the build-out of infrastructure for the energy, pipeline, and construction industries, announced a new business relationship with a Canadian based oil and gas producer secured by its Evolution Power projects division. It is another milestone for the company which continues to grow steadily, while providing a positive ROI to its investors. 

Company Overview

In order to serve a wide range of clients, including small local businesses and Tier One global resource companies, Enterprise Group (TSX: E) aims to provide technologies that mitigate, reduce, or eliminate CO2 and greenhouse gas emissions. The 2004-founded company experienced phenomenal growth before going public in 2005 and graduating to the TSX only three years later, in 2007. The company, which has its attention on Western Canada, acquires companies to broaden its range of services, hasten organic growth, and cut costs. For Enterprise Group, its attractive growth profile preached is: 

• Track record of successfully acquiring complementary businesses at accretive valuations and delivering results after the acquisition.
• Located in and along the foothills of the WCSB’s most productive areas, including the Oil Sands district and the Montney, Duvernay, Cardium, and Viking formations.
• Setting the bar higher by developing Natural Gas to Electricity methods of client-provided mobile power. helping their clients achieve their ESG goals by significantly reducing emissions, improving safety, and cutting costs.

Enterprise Group follows a 4-step process when buying a business:

Identification

• Successful privately owned businesses operating in their current markets and industries;
• Proven operational and financial performance serving select clients.

Evaluation

• Due to capital constraints, Target is unable to take advantage of growth opportunities;
• Is it possible to achieve a desirable transaction price?

Integration

• Use rewards to keep key executives.
• Find and use synergies with current business units;

 • Invest money to support growth.

Growth

• Benefit from connections and practical knowledge;
• Expand opportunities, EBITDA, and revenue.

Here is an illustration of an effective acquisition: In 2007, Enterprise paid $12 million for TC Infrastructure, or a 2.0 multiple of trailing EBITDA. In 2016, the company sold TC for $20 million. TC generated $27 million in EBITDA for Enterprise Group during its ownership.

Enterprise Group announced on January 12 that its Evolution Power Projects division had established a new business connection with a Canadian oil and gas producer. The new client, valued at nearly $1 billion CAD, has a reputation for acquiring assets with exploitation potential while also putting in place a full-cycle exploration program. The company’s operational activities will be enhanced by the installation of natural gas power generation systems from Enterprise Group, helping it to better meet all environmental regulatory standards and requirements.

“We will continue to be early adopters of clean technology and industry innovation. We deliver value to our customers through emission reduction technology and support their ESG initiatives. Natural gas electrification is the future of energy evolution. Cleaner, quieter, safer, and most importantly – Measurable”

Heather Johnson, CEO of the EPP subsidiary

In order to “maintain and enhance the environmental quality of life for future generations,” the organization works to reduce its environmental impact. The way mobile power is supplied on-site is being reimagined by Evolution Power Projects. The targeted strategy aims to increase productivity, simplify rental management, support essential services, and promote natural gas substitutes. With the help of EPP’s “Concept to Completion Approach,” customers can assess their overall power needs, which also provides creative, low-carbon, environmentally friendly options.

Share Structure/ Financials

The most recent financial statements were made for the period ending September 30, 2022. The business has no debt and $51.3M in total assets, including $1.6M in cash and $40.7M in property, plant, and equipment. Revenue for the third quarter of 2022 was $5.2M, an increase of 33% from the third quarter of 2021. This rise is comparable to the year-over-year rises in gross margin and adjusted gross margin. Compared to Q3 2021, the adjusted EBITDA increased by 16%. Enterprise Group spent $3.6M, and incurred a net loss of $677k, primarily due to the depreciation of property, plant, and equipment ($1M).

Enterprise Group has 52M shares outstanding, and has neither warrants nor options. Enterprise Group effects a Normal-Course Issuer Bid program and bought back +9M shares since inception. Now, the management team owns 40%, which is pretty massive. 

The stock price, which has been hovering around $0.40, is essentially unchanged. The 52-week range is $0.28 to $0.46, but Fundamental Research’s analysis shows that the company’s valuation ought to be higher. Fundamental Research Research is maintaining its BUY recommendation and $1.08 per share fair value estimate. Future catalysts include the company’s mobile power systems being adopted more widely and strong Q4 results.

Bottom Line

Enterprise Group (TSX: E) keeps expanding. Revenue growth is still visible in its financial reports, and the most recent partnership will increase gains. Enterprise Group is vastly undervalued, as shown by Fundamental Research, which in its report, estimated a fair value of $1.08 per share and noted that the company’s mobile power systems would support its growth during Q4 2022.

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