Enterprise Group Ending 2017 Strong, Stock Price Should Start to Follow

The oil and gas industry is ending 2017 with more momentum than it has seen in since collapsing in 2014 from over $100 a barrel. By large, analysts are optimistic about 2018, including the Petroleum Services Association forecasting a 5 percent rise in Canadian oil and gas drilling activity. Paris-based International Energy Agency sees oil output in Canada rising to near the five million barrel per day milestone in 2018 as the country edges closer to beating out Iraq as the fourth biggest producer globally.

Companies that merely weathered the multi-year downtrend may still struggle amid oil prices remaining inexpensive compared to peaks, but those that took the opportunity to get down to brass tacks and streamline operations ultimately should come out stronger, whether oil holds around $60, dips again or pushes higher. Enterprise Group (TSX: E) was on an acquisition roll before the oil rout began, building a portfolio of synergistic construction services companies (Artic Therm International, Calgary Tunnelling & Horizontal Augering, Hart Oilfield Rentals and Westar Oilfield Rentals) catering to the energy, utility and transportation infrastructure industries. Through it all, management cut costs where necessary to find a balanced position to remain diversified between the industriesand operate efficiently.

Even any divesture was a savvy move, such as selling TC Backhoe last year for about C$20 million after paying C$12 million for it just nine years earlier.

As such, Enterprise management believes it is one of a select group of producers and service providers that have adapted to operate successfully in the current commodity price environment. Furthermore, the St. Albert-based company said it experienced a “meaningful increase” in activity from existing customers and a “substantial surge” in new customers in 2017. That certainly wasn’t just lip service; the aggregate of efforts for efficiency of increased demand showed in numbers from the third quarter.

Revenue jumped 69% from the year prior quarter to $11.04 million. Validating that the fat was trimmed, gross margin percentage improved to 29% from 23%, helping Enterprise operate profitably during the quarter.

Rising revenue, profitability, proven leadership, over $1.0 million in cash on hand (at the end of Q3), assets of $82.4 million against liabilities of $30.7 million; these aren’t the type of things an investor would expect to see in a company with a $17 million market capitalization. Especially not against the backdrop of resurgence in the oil and gas sector with a de-risk factor of diversification in utilities and transportation infrastructure. If the company can put an exclamation point on 2017 with a solid Q4, its slow and steady uptrend from lows in 2016 to around 30 cents currently should accelerate and retake ground lost from over $3 per share when oil prices took a dive 3-1/2 years ago.

All things point to a promising 2018 at Enterprise and its group of companies.