Fabrice Taylor to investors: Buy Enterprise Group
An energy service company that's leveraged to LNG
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at firstname.lastname@example.org
by Max Fawcett
Fabrice Taylor, the publisher of the President’s Club newsletter (and a former Alberta Venture columnist) released another pick for his subscribers recently, and it’s worth a look. Enterprise Group (TSE:E) is an Alberta-based company that speaks to one of Taylor’s longest standing investing maxims – buy the companies that sell the shovels rather than the ones mining the gold. In this case, the play in question is liquefied natural gas (LNG), and Taylor thinks Enterprise is well-leveraged to the upside it offers. “Enterprise isn’t a general pipeline contractor,” Taylor writes. “It’s a collection of businesses that will benefit enormously from the construction boom getting under way by offering high-margin, specialized services.”
Enterprise has five separate divisions that have been rolled up into one company: Hart Oilfield Rentals, which provides camp equipment; Calgary Tunnelling, which specializes in putting pipelines in difficult places; TC Backhoe & Directional Drilling, which installs and maintains utility services like power and telephone lines; Arctic Therm, which designs and rents flameless heaters; and E-One, which deals in heavy equipment rentals. And it’s that collection of different but complementary companies that Taylor finds intriguing. “I like the way management grows. They’ve acquired an interesting collection of businesses that, in the hands of a corporation as opposed to the mom and pop entrepreneurs who started and ran them, can raise the required capital to expand.” Those business also cross-sell to each other, a tried and true strategy for growing revenues organically.
“To get a sense of the interest in this story, consider that Enterprise announced a $12-million equity financing last month that was quickly doubled,” Taylor writes. “Demand, the bankers told the company, was $63-million. That raised eyebrows, as some fretted about dilution. But I think the raise makes sense: Enterprise can’t meet current demand for its services, and most of the money will go to adding equipment at existing subsidiaries, rather than new acquisitions. There’s no shortage of work, and now the company has the means to win it. This is organic growth – the best kind. Investors should benefit nicely.”