Enterprise Oilfield Group, Inc. (E – $0.15) is active in the pipeline construction & maintenance, directional drilling & utility installation and heavy equipment rentals industries. All three divisions are performing very well, and as such the Company has experienced a significant turnaround since the second half of 2011.
With the price of oil consistently over $90 per barrel, oil companies started drilling wells again in western Canada, creating demand for the Company’s pipeline construction business.
At the same time, Enterprise’s directional drilling & utility installation division is operating at or near capacity because the number of new subdivision developments in Alberta continues to increase due to low interest rates and the demand for new housing.
Moreover, in the third quarter of 2011 the Company started renting out its heavy equipment and has already secured contracts with several blue chip clients since. To fuel the growth of the division, Enterprise’s management is considering significant capital expenditures to increase the rental fleet.
Ever since Enterprise Oilfield Group became a public Company it’s been on a growth-by-acquisition path. In a recent interview with Smallcaps.us, Leonard Jaroszuk, the Company’s President and CEO, said that Enterprise is in progress of acquiring a small rental company in northern Alberta. The target company has revenues of about $4.5 million annually, on which it earns close to $2.75 million.
Additionally, the Company has a seasoned management team. Its decision, for instance, to avoid smaller margin projects when the oil industry was slow has proven to be successful as the pipeline construction & maintenance division made a positive contribution to EBITDAS in the fourth quarter of 2011. Moreover, because the Company preferred not to use its equipment over executing money loosing contracts, it was able to start the successful heavy equipment rentals division.
Based on the Company’s increased activities and a potential acquisition in the near future we expect sales to reach $25.5 million in 2012 and we foresee earnings to come in at $5.45 million, or $0.09 per share. Therefore we initiate coverage of Enterprise Oilfield Group with a buy recommendation and a price target of $1.17, which is more than 7 times today’s stock price.
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