Small Cap Updates & New Recommendations for August 16, 2014

Earnings season is in full swing, so we’re discussing interesting quarterly results from Noble Roman’s (NROM) and Enterprise Group (E). In addition, we have an update on the acquisition of WaterFurnace (WFI).

Noble Roman’s, Inc. (NROM – $1.70), the franchisor and licensor of Noble Roman’s Pizza and Tuscano’s Italian Style Subs, continues to benefit from growth in its three primary venues, which are non-traditional franchises/licenses other than grocery stores, the sale of take-n-bake pizzas through grocery deli departments and stand-alone take-n-bake franchised locations.

Sales for the second quarter ended June 30, 2014 were $2.09 million, compared to $1.99 million in the comparable period of 2013, an increase of 5%. The increase was mainly due to a significant rise in royalties and fees from stand-alone take-n-bake locations, which were $221,000 for the second quarter of 2014 compared with $53,000 in same period last year. Net income was $503,000, or $.03 per share, for the quarter ended June 30, 2014, compared to $431,000 or $.02 per share, for the comparable period last year, an increase of 17%.

Net sales for the six months ended June 30, 2014 were $4.0 million, compared to $3.88 million in the same period in 2013, an increase of 3%. Net income for the six months ended June 30, 2014 was $942,000, or $.05 per share, compared to $874,000, or $.04 per diluted share in the comparable period last year, an 8% increase. The company will pay no income taxes on approximately the next $25 million in net income.

It’s interesting to note that interest in the grocery store take-n-bake locations has increased significantly after displaying the new packaging and new products at various distributor food shows.

	Three Months Ended June 30		Six Months Ended June 30
Amounts in $000’s	2014	2013	2014	2013
Net Sales	1,969	1,857	3,783	3,639
Net Income	503	431	942	824
Earnings Per Share	0.03	0.02	0.05	0.04
Most important income statement data for the quarters and six months ending June 30, 2014 and June 30, 2013. Source: Company Press Release

Overall Growth

Thus far in 2014, Noble Roman’s has signed 24 additional new franchise/license agreements for non-traditional locations other than grocery stores and is in discussion with numerous other convenience store chains and entertainment facilities for additional non-traditional locations.

During the second quarter, the company signed agreements with a chain of approximately 300 convenience stores for six locations, all of which are to open in August and September of this year. The chain has targeted 21 additional locations which it intends to sign agreements for shortly after the six are opened with development continuing thereafter until they have put Noble Roman’s Pizza in nearly all of their locations. Moreover, the company is currently in discussions with a number of grocery store chains representing nearly 6,000 possible additional grocery store locations.

Finally, the company has also entered into agreements for 61 stand-alone take-n-bake locations and is currently in discussions with several other prospects.

Conclusion

Noble Roman’s anticipates continued growth in all three venues for the remainder of 2014 and future years while maintaining stable operating costs, as has been the company’s history for the past several years.

Management provided the following revenue outlook for 2014:

• Revenue growth of 5% to 7% for royalties and fees from non-traditional franchises
• Revenue growth of 10% to 15% for royalties and fees from grocery take-n-bake locations
• Revenue growth of 300% to 350% for royalties and fees from stand-alone take-n-bake franchises

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Also Enterprise Group, Inc. (E – $0.89), the consolidator of construction services companies operating in the energy, utility and transportation infrastructure industries, announced results for the second quarter, ended June 30, 2014.

The excellent results reflect both the continued positive impact of the acquisitions completed during the prior 24 months – Enterprise acquired Artic Therm International Ltd. in September 2012, Calgary Tunnelling & Horizontal Augering Ltd. in June 2013, and Hart Oilfield Rentals Ltd. in January 2014 – and steady demand for the Company’s services.

During the second quarter, the company’s sales reached $14.1 million, compared to $4.8 million in the comparable period of 2013, an increase of 191%. Net income in the second quarter of 2014 rose to $329,959, versus a loss of $1,542,924 in the comparable quarter last year.

	Three Months Ended June 30		Six Months Ended June 30
Amounts in $000’s	2014	2013	2014	2013
Net Sales	14,069	4,831	35,176	13,735
Net Income	329	(1,542)	4,656	1,623
Earnings Per Share	0.00	(0.02)	0.04	0.03
Most important income statement data for the quarters and six months ending June 30, 2014 and June 30, 2013. Source: Company Press Release

All Divisions Growing

Enterprise’s Utilities/Infrastructure Division generated second quarter revenue of $8.3 million, an increase of $4.0 million when compared to the prior year. This improvement can be attributed to the acquisition of Calgary Tunnelling & Horizontal Augering Ltd. in June of 2013, an increase in activity, and the expansion of Enterprise’s service equipment fleet, which has allowed the Company to both increase its capacity and attract projects from major customers.

Enterprise’s Equipment Rental Division generated second quarter revenue of $5.8 million, an increase of $5.2 million when compared to the prior year. This improvement was primarily due to the acquisition of Hart at the beginning of the first quarter.

“We are satisfied by Enterprise’s results for the second quarter, which once again demonstrate the benefits of our selective acquisition strategy,” stated Mr. Leonard Jaroszuk, the Company’s Chief Executive Officer. “While this quarter’s results are reflective of a seasonal slowdown, we were pleased by the consistent demand for our services, and by our ability to maintain our commitments to our workforce as we prepare for the second half of 2014. Seasonal demand is historically much higher during the latter half of the year, and Enterprise is ideally positioned to service this demand.”

Recent Acquisition

On July 31, 2014, the Company announced that it had signed a letter of intent to acquire a privately-owned oilfield site services rental company based in Fort St. John, British Columbia.

The Fort St. John region is a critical area in the development of Western Canada’s LNG industry. This acquisition will immediately be accretive to Enterprise Group and will better position the company to meet the demands of the LNG industry. The Company expects to complete this acquisition by October 2014.

Conclusion

Enterprise remains on track to deploy $20.0 million of capital expenditures over the course of 2014. These capital expenditures are intended to create improvements in both the Company’s revenue and operating margins. Management believes these improvements will be reflected in the Company’s operating results during the second half of 2014.

Enterprise also anticipates to complete its new acquisition, which will be immediately accretive, by October of 2014. Enterprise remains one of our core holdings.

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Finally, we wanted to update you on the recently announced acquisition of WaterFurnace Renewable Energy (WFI – $30.48), one of the market leaders in the North American geothermal heat pump heating and cooling solutions market by Swedish based NIBE Industrier AB, one of the leading heat pump manufacturers in Europe.

NIBE received antitrust approval for the acquisition of WaterFurnace.

The completion of the acquisition remains subject to the approval of at least two-thirds of the votes cast by WaterFurnace shareholders, and it’s further subject to the approval of the Ontario Superior Court of Justice. The parties expect closing the deal by the end of August 2014.

Conclusion

When we first featured WaterFurnace on Smallcaps in June of 2013, its stock was trading around $20.25. So despite that we’re looking at a 50 percent profit in 14 months, it’s sad that we have to part from the company, because we feel it has such a tremendous future ahead.

It looks like nothing stands in the way of NIBE to acquire WaterFurnace. We advise you to sell your shares at around the current price, which is only a slight discount to NIBE’s offered price of $30.60 per share.

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