Robust Fourth Quarter and 2013 Expected for Enterprise Group
It looks like Enterprise Group (E – $0.23 & 3EO – €0.213) is well on its way for a strong fourth quarter. In the previous quarter, the Company acquired Artic Therm and incurred most of the costs associated with the takeover. Now, Enterprise Group is enjoying the fruits of that acquisition.
Artic Therm is an industry leader in renting flameless heaters to the construction and oil & gas industries in Western Canada. It just finished a pipeline thermal expansion project near Fort McMurray, commissioned by the world’s largest producer of bitumen, for which it used the largest units of its fleet. These same units are now being used for another pipeline thermal expansion project near Swan Hills, Alberta.
Moreover, Artic Therm’s equipment has already been contracted for early 2013 by Canada’s largest natural gas producer for another significant pipeline thermal expansion project in British Columbia.
Enterprise’s strategy to grow Artic Therm is similar to what it has done with previous acquisitions: inject capital to expand manpower and equipment where needed in order to service a larger customer base. The Company has already successfully done this when it bought A.G. Grant in 2005, growing its revenues from $7 million to $22 million in just one year. And repeated this feat in 2007 after it bought T.C. Backhoe & Directional Drilling Inc.
During the twelve consecutive months ending March 31, 2012, Artic Therm generated sales of $4.7 million resulting in an EBITDA in excess of $2.7 million and a net profit of over $2.0 million. Enterprise paid $6.5 million for the company. Without adding any growth, those results would add more than 3 cents per share to Enterprise’s bottom line.
E One Limited
More good news came from Enterprise’s heavy equipment rental division, E One Limited. It was able to rent out a significant portion of its fleet to a major Canadian pipeline contractor. The equipment will most likely be utilized for the entire winter construction season. As a result, also this division should make a positive contribution to the Company’s financials in the fourth quarter.
Construction contractors typically operate a core fleet and will rent when activity surpasses full utilization of their fleet. Enterprise Group’s management noticed this trend, and launched E One Limited early 2012.
Enterprise is also in the process of finalizing the acquisition of a utility services & maintenance company out of Edmonton, Alberta. Most costs associated with the takeover have already been recorded in the third quarter.
Because the target company is completing a corporate reorganization to prepare itself for the impending sale, the deal hasn’t been closed yet. The acquisition target is profitable and complimentary with Enterprise’s T.C. Backhoe & Directional Drilling subsidiary.
Finally, Enterprise Group is currently negotiating and performing due diligence on an additional acquisition target that management expects to complete in the first quarter of 2013.
Artic Therm is now fully integrated in Enterprise Group. Management foresees the acquisition to start contributing significantly to the earnings of the Company.
With the E One Limited and T.C. Backhoe divisions operating near capacity, this year’s fourth quarter and 2013 look very robust for Enterprise. Moreover, the expected acquisitions may give an additional boost to the Company’s earnings.
The Company has been profitable for five consecutive quarters and we expect many more to follow. Overhead and other costs are reduced where possible and the Company has about $9.5 million of non capital losses to offset any income taxes payable. Buy recommendation.
|Smallcaps.us Advice: Buy||Price Target: $1.17||Latest Company Report (pdf)|
|For important disclosures, please read our disclaimer.|